Shareholders
Agreement
[Insert Company name]
[Pick the date]
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Page 1 of 36
TABLE OF CONTENTS
1.
DEFINITIONS AND INTERPRETATION ......................................................................................... 4
2.
SHAREHOLDER AGREEMENT ................................................................................................... 10
3.
TERM ............................................................................................................................................. 10
4.
INCORPORATION ......................................................................................................................... 10
5.
NAME ............................................................................................................................................. 10
6.
CONSTITUTION ............................................................................................................................ 11
7.
COMMERCIAL OBJECTIVES ....................................................................................................... 11
8.
SOLE COMMERCIAL VEHICLE ................................................................................................... 12
9.
DIRECTORS AND OBSERVER .................................................................................................... 13
10.
BOARD MEETINGS ................................................................................................................... 14
11.
CONDUCT OF COMPANY BUSINESS ..................................................................................... 15
12.
CRITICAL BUSINESS MATTERS ............................................................................................. 16
13.
ADMINISTRATION..................................................................................................................... 16
14.
GENERAL MEETINGS .............................................................................................................. 17
15.
SHARE CAPITAL ....................................................................................................................... 17
16.
ISSUES OF EQUITY SECURITIES ........................................................................................... 18
17.
TRANSFER OF SHARES .......................................................................................................... 19
18.
TAG ALONG RIGHTS................................................................................................................ 21
19.
DRAG-ALONG RIGHTS ............................................................................................................ 22
20.
GOODWILL AND RESTRAINT ................................................................................................. 23
21.
DISPUTE RESOLUTION ........................................................................................................... 24
22.
CONFIDENTIAL INFORMATION AND PUBLICITY ................................................................. 24
23.
NATURE OF RELATIONS ......................................................................................................... 26
24.
CO-OPERATION ........................................................................................................................ 26
25.
ENTIRE AGREEMENT............................................................................................................... 26
26.
AMENDMENT ............................................................................................................................ 26
27.
NO WAIVER ............................................................................................................................... 26
28.
NOTICE ...................................................................................................................................... 26
29.
COSTS ....................................................................................................................................... 27
30.
GOVERNING LAW ..................................................................................................................... 27
31.
COUNTERPARTS ...................................................................................................................... 27
SCHEDULE 1 - TERMS OF ISSUE OF PREFERENCE SHARES ...................................................... 29
SCHEDULE 2 - CRITICAL BUSINESS MATTERS .............................................................................. 32
ANNEXURE A - CONSTITUTION ........................................................................................................ 34
ANNEXURE B – DEED OF ACCESSION ............................................................................................ 35
1.
AGREEMENT TO BE BOUND ...................................................................................................... 35
2.
WARRANTIES ............................................................................................................................... 35
3.
OPERATION OF THIS DEED ........................................................................................................ 36
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4.
COUNTERPARTS ......................................................................................................................... 36
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SHAREHOLDERS’ AGREEMENT
Parties
1.
[insert details] (Company)
2.
[insert details] (Investors)
3.
[Insert details] (Founding Shareholder(s))
Introduction
A.
The Founding Shareholders are Shareholders in the Company.
B.
The Founding Shareholders have agreed to cause the Company to issue Preference Shares
to the Investors on the First Tranche Subscription Date and the Second Tranche Subscription
Date (as defined in the Subscription Agreement) and the Investors have agreed to become
Shareholders’ of the Company.
C.
This agreement records the terms and conditions on which the parties have agreed to operate
the Company.
Operative clauses
1.
Definitions and Interpretation
1.1
Definitions
In this agreement:
Board means the board of Directors of the Company;
Business Day means any day except a Saturday or a Sunday or other public holiday in New
South Wales;
Business Plan means the business plan of the Company which shall include details of the
business, operating, sales, financial budget, including a budget for the access to key
equipment, product development plan, technology and human resources plans of the
Company and such other details as the Board shall determine, such plan to be approved by
Directors Special Majority Approval in accordance with clause 11.1 of this agreement;
Change of Control Transaction means a transaction or series of related transactions which
involves the Transfer of greater than 50% of the Shares in the Company (on an as converted
basis) excluding a bona fide capital raising or Liquidity Event;
Chief Executive means the chief executive officer of the Company from time to time;
Company Business means the business of the Company, being:
(a)
[Insert description]
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(b)
any other fields determined by the Company from time to time;
Confidential Information means all Know How, financial information and other commercially
valuable or sensitive information of the Company in whatever form, including Intellectual
Property, Work Product, samples, devices, models and any other materials or information of
whatever description which the Company regards as confidential, proprietary or of a
commercially sensitive nature. The following are exceptions to such information:
(a)
information which is lawfully in the public domain prior to the date of this agreement or,
in the case of information disclosed to a party after that date, prior to its disclosure to
that party by the Company;
(b)
information which enters the public domain otherwise than as a result of an
unauthorised disclosure; and
(c)
information which is or becomes lawfully available to the recipient party from a third
party who has the lawful power to disclose such information to the recipient party on a
non-confidential basis.
Information is not to be considered to be in the public domain for the purposes of this
agreement unless it is lawfully available to the general public from a single source without
restriction on its use or disclosure;
Constitution means the constitution of the Company, in the form attached as 0, as amended
from time to time in accordance with this agreement and the Corporations Act;
Corporations Act means the Corporations Act 2001 (Commonwealth of Australia);
Deed of Accession means a deed of accession in the form attached as Annexure B;
Director means a director of the Company appointed under clause 9 of this agreement and
Directors means any or all such Directors;
Directors Special Majority Approval means a decision, authorisation, resolution or approval
made or given by:
(a)
a resolution at a Board meeting that has been passed by:
(1)
the affirmative vote in favour of the decision, authorisation, resolution or
approval jointly by the Founder Director and Investor Director together will
all other Directors (excluding the Investor Directors) appointed under this
agreement at the time the vote is taken, attending in person (including by
appointment of an alternate Director in accordance with clause 9.2), or by
any form of technology approved by the Board in accordance with clause
10.2, and entitled to vote on the matter in question; or
(2)
the affirmative vote in favour of the decision, authorisation, resolution or
approval by at least the Founder Director and at least one other Director
(including the Investor Directors) appointed under this agreement at the time
the vote is taken, attending in person (including by appointment of an
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alternate Director in accordance with clause 9.2), or by any form of
technology approved by the Board in accordance with clause 10.2, and
entitled to vote on the matter in question; or
(b)
a circular resolution signed by all of the Directors who are entitled to vote on the
matter in question containing a statement that they are in favour of the resolution set
out in the document;
Equity Securities means ordinary shares, preference shares other shares, options,
convertible notes, warrants or other securities or instruments convertible or exercisable into
Shares or other securities in the Company;
Event of Default means, in respect to the Company:
(a)
an Insolvency Event;
(b)
the Company being in material breach of the terms of this agreement and the breach
not being remedied within 30 Business Days of receipt of written notice of such
breach;
Exit has the meaning given in clause 7.3;
Exit Date means the date by which an Exit is to be achieved in accordance with clause 7.3,
being a date no later than [Insert estimated time e.g. 5 years from the date of this agreement],
unless extended by the Investors in accordance with clause 7.6;
Exit Notice has the meaning given to that term in clause 7.3;
Expert has the meaning given to that term in clause 17.2;
Financial Year means:
(a)
the period beginning from the start of the term of this agreement and ending on the
following 30 June;
(b)
after the first financial year, each period of 12 months ending 30 June;
Founder Director means a Director nominated and appointed by the Founding Shareholder
and only while the Founding Shareholder (as applicable) is a Shareholder of the Company and
have the right to appoint a Director;
Improvements means, in respect to the Key Assets, all developments, improvements,
enhancements, adaptations, new discoveries, inventions, applications and further Know How
(whether patentable or otherwise) enabled by, developed from or reliant upon the Key Assets,
and includes all Intellectual Property in the foregoing;
Insolvency Event means an event in relation to a Shareholder or the Company where:
(a)
it disposes of the whole or any part of its assets, operations or business other than in
the normal course of business;
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(b)
any step is taken to enter into an arrangement between the Shareholder or the
Company (as applicable) and its creditors;
(c)
it ceases to be able to pay its debts as they become due;
(d)
it ceases or resolves to cease to carry on business;
(e)
any step is taken by a mortgagee to enter into possession or dispose of the whole or
any part of the Shareholder's or the Company’s (as applicable) assets or business; or
(f)
any step is taken to appoint a receiver, a receiver and manager, a trustee in
bankruptcy, a liquidator, a provisional liquidator, an administrator or other like person
of the whole or any part of the Shareholder's or the Company’s (as applicable) assets
or business;
Intellectual Property means [insert description] or the defined term ‘Intellectual Property
Rights’ in the Licence and Assignment Agreement (if any);
Investor Director(s) means the Director nominated and appointed by the Investor (if any
appointed under clause 9, and only while the Investor (as applicable) is a Shareholder of the
Company and have the right to appoint a Director);
Key Assets means, for the purposes of clause 25, the Intellectual Property and commercial
property assets of the Company, includes subsequent Improvements and any commercial
agreements of the Company;
Key Personnel means [insert name] and other suitably qualified persons as required and
appointed by the Board to be approved by Directors Special Majority Approval;
Know How means all unpatented technical and other information not in the public domain
including inventions, discoveries, concepts, data, formulae, ideas, specifications, designs,
architectures, procedures, experiments and test results, laboratory records, trial data, case
reports, data analyses, summaries, submissions to and information from regulatory bodies;
Liquidity Event means:
(a)
a disposal of the whole or substantially the whole of the shares, assets, business and
undertakings of the Company by whatever means (including Trade Sale, transfer,
license, declaration of trust or otherwise);
(b)
an order being made for the winding up or dissolution of the Company;
(c)
a liquidator or provisional liquidator being appointed to the Company;
(d)
a resolution being passed to effect the voluntary or involuntary winding up of the
Company,
(e)
return of capital (excluding a redemption of Preference Shares);
(f)
the Company being otherwise wound up, deregistered, dissolved or liquidated;
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Preference Shares means the Series A redeemable convertible participating preference
shares in the capital of the Company with the terms of issue set out in the Constitution;
Preference Shareholder means a holder of Preference Shares;
Related Entity means:
(a)
in relation to a Shareholder who is a corporation, a related entity as defined by the
Corporations Act; and
(b)
in relation to a Shareholder who is an individual, the spouse, parent, son or daughter
or, or any trustee of a trust the beneficiaries of which comprise one more of such
persons;
Restraint Area means:
(a)
the World;
(b)
Australia;
(c)
New South Wales;
Restraint Period means the period from the execution of this agreement to the date [insert
time frame e.g. six calendar months] after the Shareholder or Director or Related Entity of a
Shareholder or Director ceases to be a Shareholder or Director of the Company;
Shareholder means a person that holds Shares in the Company from time to time (as the
context requires);
Shareholder Event of Default means, in respect to a Shareholder:
(a)
an Insolvency Event; or
(b)
a Shareholder being in material breach of the terms of this agreement and the breach
not being remedied within thirty (30) days of receipt of written notice of such breach;
Shares means ordinary shares and /or Preference Shares in the capital of the Company (as
the context requires);
Subscription Agreement means the subscription agreement between the Company, the
Investors and the Founding Shareholders dated on or about the date of this agreement;
Trade Sale means the sale of:
(a)
all or substantially all of the main operating subsidiaries of the Company;
(b)
the whole or a substantial part of the Business; or
(c)
all or substantially all of the Shares or assets of the Company;
Transaction Documents means:
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(a)
this agreement;
(b)
the Subscription Agreement;
(c)
the Constitution;
(d)
[if any or similar else delete, the Licence and Assignment Agreement]; and
(e)
any other documents required by the above documents;
Transfer means to sell, assign, transfer or otherwise dispose of the legal or beneficial interest;
Work Product means computer code (in object code and source code forms), programming
code, data, specifications, work-up files, website content (including HTML script, designs,
forms, text, music, graphics, photographs and videos), documents, designs architectures,
spreadsheets, flowcharts, records,(electronic or hard copy) and other materials, in whatever
form subsisting in the Intellectual Property.
1.2
Interpretation
In this agreement, unless the context otherwise requires:
(a)
singular includes plural and plural includes singular;
(b)
words of one gender include any gender;
(c)
reference to legislation includes any amendment to it, any legislation substituted for it,
and any subordinate legislation made under it;
(d)
reference to a person includes a corporation, firm and any other entity;
(e)
reference to a party includes that party's personal representatives, successors and
permitted assigns;
(f)
headings do not affect interpretation;
(g)
a provision must be read down to the extent necessary to be valid. If it cannot be read
down to that extent, it must be severed;
(h)
if a thing is to be done on a day which is not a Business Day, it must be done on the
Business Day after that day;
(i)
a reference to “including” should be read as “including, without limitation,”;
(j)
another grammatical form of a defined expression has a corresponding meaning;
(k)
an expression defined in the Corporations Act has the meaning given by the
Corporations Act;
(l)
no rule of construction applies to the disadvantage of a party because that party put
forward this document or any portion of it; and
(m)
where this Agreement refers to the “satisfaction,” “consent,” “approval,” or similar
indication of assent or consent on the part of any party in relation to a particular
matter, in the absence of an express qualification that the party in question act
“reasonably” or “in good faith” or in a particular manner such party may withhold the
same for any reason in its absolute discretion.
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2.
Shareholder Agreement
2.1
The Shareholders agree that the Company is to conduct its business and affairs in a manner
consistent with the terms of this agreement and the business plan adopted by the Company in
accordance with the term of this agreement.
2.2
The parties to this agreement acknowledge and agree that there are no Shareholders
Agreements in place or force prior to this agreement, if there are any such agreement, that
agreement is terminated and of no further force or effect without prejudice to any accrued
rights or obligations of the parties prior to termination.
3.
Term
3.1
This agreement starts on the date that Preference Shares are first issued to an Investor under
the Subscription Agreement.
3.2
Subject to the other provisions of this agreement, this agreement terminates with no further
action required by the parties on the first to occur of the following:
(a)
one Shareholder owning all of the shares in the Company following a transfer(s) under
and in accordance with this agreement;
(b)
the Company is wound up and its surplus assets (if any) distributed to the
Shareholders;
(c)
express written agreement signed by all parties to this agreement at the relevant time;
or
(d)
in the event of a Trade Sale.
3.3
Unless this agreement expressly provides to the contrary, a former Shareholder is not bound
by this agreement from the time it ceases to hold Shares in the Company. Any rights and
obligations of a Shareholder shall cease from the time it ceases to hold Shares in the
Company, however, the former Shareholder still has the rights and obligations that accrued
before that time.
4.
Incorporation
4.1
(Status) The Company is incorporated as a proprietary company limited by shares.
4.2
(Change to status) The Company may change its status to a public company, following a
recommendation by the Board, by resolution passed in accordance with the Corporations Act.
5.
Name
5.1
(Name) The name of the Company is [insert name] Pty Ltd.
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5.2
(Change of name) The Company may change its name, following a recommendation of the
Board, by resolution passed in accordance with the Corporations Act.
6.
Constitution
6.1
(Constitution) The Constitution of the Company at the date of this agreement is to be in the
form annexed as 0.
6.2
(Amendments) The Company may adopt a new constitution, following Directors Special
Majority Approval, by resolution passed in accordance with the Corporations Act. The
Constitution must be consistent with the terms of this agreement.
6.3
(Inconsistency) In the event of any inconsistency between the provisions of this agreement
and the provisions of the Constitution this agreement will prevail, the parties must vote, cause
any Directors under their influence or control to vote, and otherwise shall exercise their best
efforts to cause the Constitution to be amended to resolve the inconsistency in favour of this
agreement.
7.
Commercial Objectives
7.1
(Objectives) The commercial objectives of the Company are to:
(a)
carry on the Company Business;
(b)
develop and expand the Company Business;
(c)
maximise the value of the Company;
(d)
complete an Exit in accordance with clause 7.3 by no later than [5 years from the date
of this agreement]; and
(e)
do everything else the Board considers will attain or further these purposes.
7.2
Each Shareholder must use its best endeavours to achieve the commercial objectives set out
in clause 7.1 of this agreement.
7.3
(Exit) It is the intention of the Shareholders that the Company undertake an initial public
offering, Trade Sale, amalgamation or merger (Exit) by no later than [5] years from the date of
this agreement (Exit Date). All opportunities are to be considered on their merits. If an offer or
proposal for an Exit is not received by the Exit Date, Shareholders holding more than 51% of
the fully diluted capital of the Company will be entitled to give a notice in writing to the other
Shareholders (with a copy to the Company) (Exit Notice) requiring all Shareholders in good
faith to:
(a)
endeavour to agree to a strategy to achieve an Exit as soon as reasonably practicable
that will maximise the value of the Company; and
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(b)
secure the Board’s approval of that strategy insofar as the implementation of the
strategy requires action by the Company and the Company can lawfully implement it
under the Corporations Act.
7.4
If Shareholder agreement and, to the extent required, Board approval, does not occur within 3
months of the date that the Exit Notice was issued, the Company must appoint an experienced
investment or financial adviser of good standing and approved by the Board (Adviser) to
recommend what the Adviser believes to be the most appropriate Exit strategy and timing
having regard to all applicable circumstances and the objective of maximising Shareholder
value.
7.5
Subject to clause 7.6, each Shareholder and, so far as it is lawfully able to do so, the
Company must do all things necessary to implement (as applicable):
(a)
the Exit strategy approved by the Board within the timetable set out in that approval
under clause 7.3; or
(b)
the recommendations made by the Adviser under clause 7.4,
including, executing all necessary documents or agreements and voting in favour of the
approved or recommended Exit at any general meeting of the Company.
7.6
Notwithstanding the above clauses:
(a)
The Investors shall not be bound by the Exit strategy approved by the Board under
clause 7.3, or the recommendations of the Adviser under clause 7.4, nor shall the
Investors be obliged to comply with the requirements of clause 7.5; and
(b)
The Investors may extend the Exit Date or the period by which the Exit strategy
approved by the Board under clause 7.3, or the recommendations of the Adviser
under clause 7.4, are to be achieved, if, in the reasonable opinion of the Investors,
unfavourable capital markets exist at that time.
8.
Sole Commercial Vehicle
8.1
(Exclusive vehicle) The Company is the exclusive vehicle for furthering the commercial
objectives of the Company.
8.2
(Subsidiaries) The Company may establish a subsidiary following Directors Special Majority
Approval. The Company must ensure that any such subsidiary of the Company conducts its
business and affairs in a manner consistent with the terms of this agreement as if the affairs of
the subsidiary were the affairs of the Company and being dealt with under this agreement.
8.3
(No support) The Company is to own and carry on the business for which it was incorporated
and must enter into contracts and other obligations in its own name without guarantees,
security or other support from the Shareholders.
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9.
Directors and observer
9.1
(Directors) The Board will initially consist of not less than two Directors comprising:
9.2
(a)
one Founder Director appointed by the Founding Shareholder; and
(b)
one Investor Director appointed by the Investor.
(Alternate) Subject to the proviso in this clause, by notice in writing to the Company, a
Director may appoint an alternate to act in the Director’s place:
(a)
for a specific period or until a specified event; or
(b)
whenever the relevant appointing Director is unable to attend to his or her duties by
reason of absence, illness or otherwise.
9.3
(Chairperson) The chairperson of the Board is to be one of the Directors approved by
Directors Special Majority Approval or the Director appointed by the Founding Shareholder. In
the event of an equality of votes, the chairperson has a casting vote in addition to their
personal deliberative vote. A person ceases to hold office as chairperson if they cease to be a
Director of the Company for any reason. For the avoidance of doubt the chairperson is not to
be the Chief Executive, unless otherwise agreed unanimously by the other Directors appointed
under clause 9.1.
9.4
(Chief Executive) The Chief Executive will be responsible for the day to day conduct of the
business and affairs of the Company, any other matters the Board decides should be the
responsibility of the Chief Executive. The Chief Executive will be responsible for developing
the Company's strategy and Business Plans.
9.5
(Removal and replacement) Subject to the requirements set out in this clause, each Director
and observer may be removed and replaced by their appointor(s). The appointment, removal
and replacement of each Director and observer shall be effected by instrument in writing
served upon the Company. A Director ceases to be a Director:
9.6
(a)
if the Director resigns by written notice to the Company;
(b)
if the Corporation Act so provides;
(c)
if the Director is removed by their appointor(s);
(d)
if their appointor ceases to be a Shareholder;
(e)
if a Director misses four meetings in any 12 month period without the prior approval of
the Board; or
(f)
if a Director, in the reasonable opinion of all the other Directors, fails to fully and
properly perform his or her duties as a Director.
(Qualification) A Director need not be a member of the Company.
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9.7
(Interests of Directors) Unless expressly prohibited from doing so by statute or law, a
nominee Director may:
(a)
pay special regard in exercising his or her powers and performing his or her duties, to
the interests of any Shareholder affiliated with the Director; and
(b)
disclose any and all information received by the Director in his capacity as a director of
the Company on a 'needs to know basis' to their affiliated Shareholder in connection
with:
(1)
the affiliated Shareholder's involvement in this agreement; or
(2)
mandatory reporting or disclosure obligations under statute or law to the
extent the material to be disclosed cannot be kept 'commercial in
confidence’.
9.8
(Indemnity) The Company must offer to enter into a deed of access, indemnity and insurance
in favour of each Director of the Company and any such other officers of the Company
determined by the Board.
9.9
(Change to director appointment provisions) The Board may with Directors Special
Majority Approval increase the number of Directors that may be appointed under this clause
and the manner of election of any additional Directors that are to be appointed. For the
avoidance of doubt, the Board may not change the manner of election of the Directors
appointed under clauses 9.1(a) to 9.1(b) inclusive.
9.10
(Director’s fees) Reasonable Director's fees may be paid to any Director as recommended by
the Board and approved by Directors Special Majority Approval.
9.11
(Observer) If at any time:
10.
10.1
(a)
the Founding Shareholders elect not to appoint a Director under clause 9.1(b) then the
Founding Shareholders are entitled to appoint one person to attend all meetings of
the Board and all Board committees of the Company and its subsidiaries at their own
cost in a non-voting observer capacity. For the avoidance of doubt, if a Director is
appointed at any time under clause 9.1(a), then the Founding Shareholders are not at
the same time entitled to appoint an observer.
(b)
The Investor elects not to appoint a Director under clause 9.1(b) or a Director is
appointed under clause 9.1(b) ,then the Investor is entitled to appoint one person to
attend all meetings of the Board and all Board committees of the Company and its
subsidiaries at their own cost in a non-voting observer capacity. For the avoidance of
doubt, if a Director is appointed at any time under clause 9.1(b), then the Investor is
not at the same time entitled to appoint an observer.
Board Meetings
(Frequency) Unless all the Directors otherwise agree, there must be at least [insert number]
Board meetings per one calendar year period.
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10.2
(Manner) The Directors may meet and determine the place at which they meet and the
manner in which meetings are co-ordinated as they decide. The meetings may be held using
any form of technology approved by the Board.
10.3
(Convening) A Director or the Board may at any time call a Board meeting.
10.4
(Notice) Each Director and observer must be given at least five Business Days' written notice
of a Board meeting and the agenda applicable to the Board meeting. This requirement may
be waived for a particular meeting by all Directors in office at that time.
10.5
(Quorum) A quorum for a Board meeting is two Directors, one of which must be the Founder
Director and one being the Investor Director. If a quorum is not obtained at a meeting, the
meeting is adjourned until the same time on the next Business Day, and the Directors present
shall form the quorum.
10.6
(Voting) Each Director has one vote. A Director may be present and vote despite any interest
in the matter under consideration the Director or the Director's appointor may have in the
matter (provided that they declare the interest to the Board). A Director may give a standing
notification of an interest in accordance with the Corporations Act.
10.7
(Approval) Unless this agreement also requires Directors Special Majority Approval, a
decision of the Board is made by a resolution passed by a majority of the votes cast by the
Directors present at the meeting.
10.8
(Circular resolution) A written resolution signed by each Director has the same effect as if it
had been passed at a Board meeting properly called and held at the time when the resolution
was last signed by a Director. The resolution may be executed by way of counterpart.
10.9
(Expenses) The Company must reimburse the Directors for their reasonable economy class
travel and other expenses properly incurred in attending Board meetings, general meetings
and other meetings in relation to the Company.
11.
Conduct of Company Business
11.1
(Business Plan) The Company Business is to be conducted in accordance with the Business
Plan to be approved with Directors Special Majority Approval. The Board, with Directors
Special Majority Approval, may amend or replace the Business Plan from time to time.
11.2
(Board responsibility) The Board is responsible for:
(a)
overall monitoring of the Company Business, overseeing the implementation of the
Business Plan and determining changes to the Business Plan and corporate strategy
and performance objectives;
(b)
approval of the annual budget, significant corporate projects and major capital
expenditure initiatives;
(c)
monitoring senior management’s performance and implementation of strategy;
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11.3
(d)
generally advising on and approving the strategic direction and policies of the
Company; and
(e)
any such matters that it does not specifically delegated to the Chief Executive.
(Reporting and information requirements) During the term of this agreement, the Chief
Executive shall prepare and deliver or cause to be prepared and delivered to the Directors,
observer, and Investors the following:
(a)
within thirty days prior to the end of each Financial Year:
(1)
(b)
if required by the Board, an updated Business Plan approved by the Board;
at each Board meeting:
(1)
unaudited financial statements;
(2)
a summary of key events and progress against milestones since the last
Board meeting in a format and to a level of detail agreed with the Board; and
(3)
forecasts, as revised and updated to disclose a comparison to the Business
Plan year-to-date and any impending event or results of year-to-date
operations which, to the Company's knowledge, may have a significant
financial impact on the Business Plan.
12.
Critical Business Matters
12.1
Despite any other provision in this agreement, the Company requires Directors Special
Majority Approval in respect of the matters set out in Schedule 1 (Critical Business Matters).
12.2
(Business Plan) Where the annual Business Plan of the Company includes items which are
specifically identified as Critical Business Matters, the approval of the annual Business Plan
also constitutes the approval of the individual Critical Business Matters contained within the
Business Plan by Directors Special Majority Approval.
12.3
(Shareholder approval required) If matters requiring Directors Special Majority Approval also
requires the approval of Shareholders of the Company, the requirement for Directors Special
Majority Approval is in addition to the requirement for Shareholder approval.
13.
Administration
13.1
(Accounting policies) The management accounts and financial statements of the Company
must be prepared in accordance with the Australian equivalents to the International Financial
Reporting Standards (AIFRS) and practices consistently applied.
13.2
(External borrowing and capital raisings) The Company may borrow or raise money from
third parties. No Director or Shareholder is required to give any security, guarantee or other
similar support to the borrowing. No Director or Shareholder is under any obligation to provide
any financial accommodation of any sort for the benefit of the Company.
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13.3
(Distribution policy) Each Shareholder acknowledges that it is unlikely the Company will be
able to distribute any operating dividends in the short to medium term and that all profits will
need to be applied to operational and capital expenditure needs of the Company. The
Company may only pay a dividend with Directors Special Majority Approval.
13.4
(Insurance) The Company must effect such insurances as the Board decides are prudent
having regard to the nature and development of the Company Business and the Company's
financial capacity to pay premiums.
14.
General Meetings
14.1
(Voting) Unless the Corporations Act requires otherwise, the holders of ordinary shares and
Preference Shares will vote together as if they formed one class.
14.2
(Quorum) A quorum for a general meeting is any two Shareholders, and must include at least
one Founding Shareholder representative.
14.3
(Number of votes) Each ordinary Shareholder has one vote for every ordinary Share it holds.
Each Preference Shareholder has a number of votes equal to the number of ordinary Shares
that their Preference Shares may convert into (whether or not they have been converted).
14.4
(Passing resolutions) Unless the Corporations Act or the constitution requires otherwise,
resolutions considered at a meeting are ordinary resolutions determined on a poll by a simple
majority of votes.
14.5
(Proxy qualification) A proxy, attorney or other representative of a member at a general
meeting need not be a member of the Company.
14.6
(Circular resolution) A written resolution signed by all the Shareholders required to pass a
resolution by way of circular resolution under the Corporations Act has the same effect as if it
had been passed at a meeting properly called, held and attended by all Shareholders at the
time when the resolution was last signed by the final necessary Shareholder. Written
resolutions may consist of several documents in the same form, each signed by one or more
Shareholder.
15.
Share Capital
15.1
(Terms of issue) The terms of issue of the Preference Shares are as set out in the
Constitution.
15.2
(Employee incentive plan)
(a)
The Board of the Company may at any one time issue ordinary Shares or options over
ordinary Shares representing up to [#]% of the fully diluted share capital of the
Company as at the time of, and assuming the issue of all the Shares proposed to be
issued under the Subscription Agreement. The Shares and options will be issued to
officers, employees and consultants (including the Founding Shareholders/Inventors)
of the Company under an employee option or incentive plan to be satisfied and
approved by Directors Special Majority Approval.
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(b)
The plan will include typical stock repurchase rights for un-vested options of departing
employees.
(c)
The number of options and shares that can be issued by the Company under this
clause may be adjusted consistently with any reconstruction of the issued share
capital of the Company.
(d)
Any variations to the plan approved under clause 15.2(a) may be made following
Directors Special Majority Approval.
15.3
(Certificate legend) Each Shareholder will be issued a share certificate for its Shares that is
to bear a legend that the Shares are held subject to the terms of this agreement.
15.4
(Deed of Accession) The Board must not issue any new Equity Securities, permit the
Transfer of Shares, or permit the exercise or conversion of any Equity Securities to any person
that is not a signatory to this agreement, until the proposed allottee or transferee has executed
and delivered to the Company a Deed of Accession.
15.5
(Optionholders) Each holder of options or convertible Equity Securities will be required on
exercise of options or conversion of their convertible Equity Securities to be bound by the
terms of this agreement. Pending exercise or conversion, the security holder will be issued a
certificate that is to bear a legend that shares issued on exercise or conversion of the
securities will be held subject to the terms of this agreement.
16.
Issues of Equity Securities
16.1
(Permitted issues) The Company must not issue, agree to issue or grant any right or option
to any Equity Securities without following the procedure in clause 16.2, except:
16.2
(a)
to issue additional Shares, as contemplated under the Subscription Agreement;
(b)
to issue Shares arising on the exercise of options or conversion of convertible
securities previously issued by the Company (if applicable); or
(c)
under a duly adopted employee incentive plan consistent with clause 15.1.
(Investor’s first right of offer)
(a)
At least thirty Business Days before any proposed capital raising, the Company will
deliver to each Investor a notice stating details of the proposed capital raising
including details of all material terms and conditions of the proposed offering. For a
period of fifteen Business Days following delivery of the notice, the Investors may, by
written notice to the Company, elect to purchase a number of Equity Securities offered
in the proposed capital raising pro-rata in such a proportion that their respective total
shareholding (of both ordinary Shares and Preference Shares on an as converted
basis) bears to the other Investors. In the event that an Investor elects not to take up
their right of first offer of Equity Securities and any Equity Securities remain
unallocated, the remaining Equity Securities will be re-allocated proportionately
amongst the other Investors (as applicable) who identified that they would like to buy
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more than the number of Equity Securities already allocated to them under clause
16.2(a);
(b)
If after the operation of clause 16.2(a) any Equity Securities remain unallocated, the
Company may at its discretion and with prior Director Special Majority Approval offer
the unallocated Equity Securities to each of the other Shareholders (excluding the
Investors) pro-rata in such a proportion that their respective shareholding bears to the
other remaining Shareholders or to third parties in the capital raising on terms no more
favourable than the terms offered to the Investors.
17.
Transfer of Shares
17.1
(Shareholders first right of offer)
(a)
Subject to clause 17.3, if any Shareholder proposes to Transfer any Shares, that
Shareholder will provide a notice (Transfer Notice) to the other Shareholders
identifying the Shares for sale (Offered Shares) inviting Shareholders to notify the
seller whether they wish to buy any of the Shares. If any Shareholder Event of Default
occurs, the Shareholder will be deemed to have given a Transfer Notice for all their
Shares in the Company.
(b)
The Transfer Notice constitutes an offer by the transferor to sell the Offered Shares to
Shareholders at the price nominated by the seller (being the price at which a bona fide
third party offeree is prepared to buy the Shares on arms length terms) or if no such
price is nominated in the Transfer Notice or the Transfer Notice is deemed to be
provided as a consequence of a Shareholder Event of Default, the consideration
specified in the Transfer Notice shall be determined in accordance with clause 17.2.
(c)
Shareholders shall have the right, by providing an acceptance notice (Acceptance
Notice) to the transferring Shareholder to purchase the Offered Shares on the terms
set out in the Transfer Notice.
(d)
If a Shareholder fails to deliver an Acceptance Notice within 10 Business Days after
receipt of the Transfer Notice and having been advised of the purchase price (if clause
17.2 is applicable) it is deemed to have elected not to exercise the right of first offer
provided in this clause.
(e)
Offered Shares will be allocated among the other Shareholders electing to purchase
Offered Shares as follows:
(1)
if the transferring Shareholder receives offers for equal to or less than the
number of Offered Shares, the transferring Shareholder must sell to each
other Shareholder electing to purchase Offered Shares the number of Offered
Shares that the Shareholder has offered to buy;
(2)
if the transferring Shareholder receives offers for more than the number of
Offered Shares, the Offered Shares must be allocated pro rata to the other
Shareholder electing to purchase Offered Shares in proportion to their total
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shareholdings (of both ordinary Shares and Preference Shares on an as
converted basis);
(3)
17.2
17.3
if any Offered Shares remain unallocated then the Offered Shares must be reoffered to those Shareholders who offered to buy more than the number of
Offered Shares already allocated to them on a pro rata basis in proportion to
their total shareholdings (of both ordinary Shares and Preference Shares on
an as converted basis).
(f)
If the other Shareholders elect to purchase Offered Shares, the transferring
Shareholder must sell, and the other Shareholders must purchase, the Offered Shares
the Shareholder elected (or was allocated) to purchase at the price and otherwise on
the terms and conditions set out in the Transfer Notice.
(g)
If after the operation of this clause there are any Offered Shares which have not been
purchased, the transferring Shareholder may proceed to sell such Offered Shares to a
third party, however, if the Board reasonably determines that the third party is a
competitor of the Company, the Board must first approve the sale of the Offered
Shares to the proposed third party, such approval shall not be unreasonably withheld.
(Determination of sale price)
(a)
If no price is nominated in the Transfer Notice or on the occurrence of a Shareholder
Event of Default, the Shareholders and the transferring Shareholder must consult in
good faith and unanimously determine the purchase price payable for the Offered
Shares. If the Shareholders have not reached an agreement within 7 days, the
Shareholders must appoint an auditor or accountant (Expert) to determine the market
value of the transferring Shareholder’s Shares.
(b)
The value of the Offered Shares is the price determined by an Expert as the fair
selling value of the Shares as between a willing but not too willing seller and a willing
but not too willing buyer. In determining the fair value, the Expert acts as an expert,
not an arbitrator. The decision of the Expert binds the transferring Shareholder. The
transferring Shareholder must pay the costs of the Expert undertaking the valuation.
(Permitted transfers)
(a)
The restrictions in clause 17.1 do not apply:
(1)
if all the other Shareholders consent in writing;
(2)
to a Transfer from a Shareholder to their Related Entity if that Related Entity
has agreed to become a party to and be bound by this agreement by an
instrument in form and substance satisfactory to the Board, provided that:
(A)
if the Board reasonably determines that the third party is a competitor
of the Company, the Board must approve the Transfer of the Shares,
such approval shall not be unreasonably withheld;
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(B)
if the transferee ceases to be a Related Entity, it must, within 10 days
after it has ceased to be a Related Entity, transfer the Shares back to
the original holder or to another Related Entity of such original holder,
and failing which, the rights attached to the Shares will be suspended
until this clause has been complied with.
18.
Tag along Rights
18.1
If a Shareholder is entitled to and wishes to sell Shares to a bona fides third party purchaser
as permitted under clause 17.1 (Selling Shareholder), it must before that sale give notice to
each Shareholder (Tag Along Offerees) of its intention to sell (Tag Along Notice) and the
price at which they are to be sold to the third party purchaser.
18.2
Within fifteen days of receipt of a Tag Along Notice, the Tag Along Offerees may notify the
Selling Shareholder that they wish to sell a percentage of their Shares in the Company that is
equal to the percentage held by the Selling Shareholder in the capital of the Company
immediately prior to the sale (Tag Along Shares). If the Transfer of the Selling Shareholder’s
Shares and the Tag Along Shares would constitute a Change of Control Transaction, the
amount payable for the Preference Shares to be Transferred must be higher than the amount
payable for the ordinary Shares being sold in the Change of Control Transaction such that the
purchase price for the Preference Shares reflects any priority amounts payable in accordance
with the terms of issue of the Preference Shares.
18.3
If any Tag Along Offerees give the Selling Shareholder notice under clause 18.2, the Selling
Shareholder may not sell its Shares to the third party purchaser unless it procures that the
third party purchaser also acquires the Tag Along Shares of the Tag Along Offerees. If the
Transfer of the Selling Shareholder’s Shares and the Tag Along Shares would constitute a
Change of Control Transaction, the amount payable for the Preference Shares to be
Transferred must be higher than the amount payable for the ordinary Shares being sold in the
Change of Control Transaction such that the purchase price for the Preference Shares reflects
any priority amounts payable in accordance with the terms of issue of the Preference Shares.
18.4
For the avoidance of doubt:
(a)
the tag along rights set out in this clause 18 only apply to a sale of Shares to a bona
fide third party purchaser approved by the Board (if applicable) in accordance with
clause 17.1(h) and do not apply to a transfer of Shares between existing Shareholders
in accordance with clause 17.1 or a permitted transfer in accordance with clause 17.3;
and
(b)
the provisions of clause 18 do not affect the right of any holder of Preference Shares
to receive a liquidity preference amount in accordance with the terms of issue of the
Preference Shares.
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19.
Drag-along Rights
19.1
If a bona fides third party purchaser offers, on arms’ length terms, to purchase 100% of the
share capital of the Company (Offer), the party receiving that Offer must communicate the
Offer and its terms to all Shareholders.
19.2
Subject to prior Directors Special majority Approval, if Shareholders holding more than 51% of
the fully diluted capital of the Company wish to accept the Offer by the third party purchaser
(Accepting Shareholders), then the Accepting Shareholders are entitled to serve a notice
(Drag Along Notice) on the remaining Shareholders (Dissenting Shareholders) requiring
each of them to sell all of their Shares in the Company to the third party purchaser stipulated
in the Drag Along Notice.
19.3
The Drag Along Notice must specify:
(a)
the details of the third party purchaser;
(b)
the price payable for each Share; and
(c)
any other material terms upon which the Dissenting Shareholder’s Shares will be
purchased pursuant to the Drag Along Notice.
19.4
The terms on which the Accepting Shareholders require the Dissenting Shareholders to sell
their Shares must be on substantially the same terms on which the Accepting Shareholders
are selling their Shares however recognising the difference in value of each share class. If the
value of the different classes or series of Shares cannot be agreed by the parties, the parties
must appoint an independent valuer to determine this difference in value.
19.5
Subject to clause 19.6, on receipt of a Drag Along Notice, the Dissenting Shareholders must
do all things necessary to transfer all of their Shares to the third party purchaser and to allow
the third party purchaser to be registered as a Shareholder of the Company in accordance
with the terms and conditions of the Drag Along Notice.
19.6
If any Dissenting Shareholder does not, within 10 Business Days of being required to do so
under clause 19.5 execute and deliver transfers in respect of all of their Shares and deliver the
certificate(s) in respect of the same (or a suitable indemnity in lieu thereof), then any Director
is entitled to execute and will be entitled to authorise and instruct such person as it sees fit to
execute the necessary transfers, and, where the relevant Shares certificate has been lost, a
suitable indemnity in lieu of that lost certificate, on that Dissenting Shareholder’s behalf and on
receipt by the Company (on trust for that Dissenting Shareholder) of the consideration payable
for the relevant Shares, deliver such transfer(s) and certificate(s) (or indemnity) to the relevant
third party purchaser (or his nominee) and register such third party purchaser (or his nominee)
as the holder thereof and, after such registration, the validity of such proceedings will not be
challenged by any party to this agreement.
19.7
The parties acknowledge and agree that no Dissenting Shareholder will, or will be required to:
(a)
make any representations, warranties, indemnities or guarantees; or
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(b)
enter into any restrictive covenant or non compete provisions more onerous than
those imposed on the Accepting Shareholders,
in connection with any sale of Shares under this clause except for usual warranties and
representations as to the ownership by it of the Shares.
19.8
For the avoidance of doubt, the provisions of clause 19 do not affect the right of any holder of
Preference Shares to receive a liquidity preference amount in accordance with the terms of
issue of the Preference Shares.
20.
Goodwill and Restraint
20.1
To protect the goodwill of the Company and its proprietary intellectual property, other than as
set out in this clause, during the Restraint Period, no Shareholder or Director or Related Entity
of a Shareholder or Director, may directly or indirectly, without prior Board approval:
(a)
compete with the Company in the Restraint Area in any business or enterprise that
competes with the Company Business;
(b)
solicit or persuade a customer, client, supplier or licensor to stop or reduce its
business with the Company or in respect of the Company Business;
(c)
accept from a customer or client referred to in clause 20.1(b), any business of the kind
ordinarily forming part of the Company Business; or
(d)
induce or attempt to induce any person who is an employee of the Company to
terminate his or her employment with the Company.
20.2
Nothing in this clause 20 prevents a Shareholder, Director or their Related Entity holding less
than 5% of the issued shares or units of a body corporate or a unit trust listed on any
securities exchange.
20.3
Each of the obligations imposed on a Shareholder or Director and their Related Entities under
clause 20.1 resulting from the combinations of Restraint Periods and Restraint Areas, is a
separate and independent obligation from the other restraint obligations imposed, but they are
cumulative in effect.
20.4
Each Shareholder nominating a Director must procure that its nominee Director complies with
clause 20.1 Each other Director approved by the Board must be appointed on terms that
include a restraint no less onerous than clause 20.1.
20.5
Each Shareholder agrees that a failure to comply with clause 20.1 would reduce the value of
the Company and the Company Business and the undertakings in that clause are reasonable
and necessary to protect the Company.
20.6
The provisions of this clause 20 survive termination of this agreement.
20.7
Except as expressly set out in this agreement, this agreement does not restrict the freedom of
a Shareholder or Director or Related Entity of a Shareholder or Director to conduct any
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business or activity anywhere or in any other field without accounting to the other
Shareholders or to the Company.
21.
Dispute Resolution
21.1
A party must not start court proceedings about a dispute arising out of this agreement unless it
first complies with this clause, except:
(a)
where a party seeks urgent injunctive relief; or
(b)
where the dispute relates to compliance with this clause.
21.2
A party claiming that a dispute has arisen must notify each other party giving details of the
dispute.
21.3
Each party to the dispute must use its best endeavours to resolve the dispute within five
Business Days following receipt of notice of the dispute or a longer period agreed by the
parties to the dispute.
21.4
If the parties do not resolve the dispute under clause 21.3, the chief executive officer or other
senior employee of each Shareholder must negotiate in good faith to resolve the dispute for a
period of up to seven Business Days after the end of the period referred to in clause 21.3.
21.5
If the dispute is not resolved within the time specified in clause 21.4, or within such further
period as the parties agree, then the parties must refer the dispute to mediation in accordance
with the Australian Commercial Disputes Centre (ACDC) Mediation Guidelines.
21.6
The mediation shall be conducted in accordance with the ACDC Mediation Guidelines the
terms of which are deemed to be incorporated into this agreement, in relation to the
procedures to be adopted, the process of selection of the mediator and the costs of the
mediation.
21.7
Any determination by the mediator shall not be binding on the parties and on completion of the
mediation, the parties are entitled to commence legal proceedings.
22.
Confidential Information and Publicity
22.1
Subject to any exceptions provided below in this clause 22.1, each of the Shareholders agrees
in relation to Confidential Information:
(a)
to use the Confidential Information only for the purpose of the conduct of the Company
Business and, in respect of Shareholders, to make decisions regarding their
investments in the Company; and
(b)
to keep all Confidential Information confidential and not disclose it or otherwise allow it
to be disclosed except:
(1)
information which is in or comes into the public domain (other than as a
result of a breach of confidence by any person);
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(2)
to the auditor, officer, employee, agent or contractor of, or adviser to, the
Shareholder with a ‘need to know' and who is bound to, or agrees to,
likewise keep the information confidential;
(4)
the third party is a related body corporate of the Shareholder or a
shareholder of the Shareholder where that related body corporate or
Shareholder likewise agrees to keep the information confidential;
(5)
disclosure is required for the purposes of or in connection with any actual
pending or threatened legal proceedings or any advice in connection with
any possible legal proceedings involving the Shareholder or Director or any
of their officers, employees or agents;
(6)
if disclosure is required by the mandatory provisions of:
(A)
the listing rules of any securities exchange; or
(B)
statute or law,
and to the extent there is no applicable 'commercial in confidence' (or
equivalent exception) applicable;
(c)
to establish and maintain all necessary security measures to maintain the confidential
nature of any confidential information provided in any medium, in no event less than
the same degree of care that they would take to protect their own confidential and
proprietary information of similar importance.
22.2
A Shareholder must use reasonable efforts to consult with the Company and must in good
faith take into account any concerns of the Company, before making any disclosure under this
clause 22.
22.3
In the event of a disclosure required by law, including but not limited to disclosure to the
Australia Securities & Investments Commission, the Company would use its best efforts (and
cooperate with the other party's efforts) to obtain confidential treatment of materials so
disclosed.
22.4
No Shareholder or employee may make any press or other announcements, releases or other
disclosures relating to the Company without the approval of the Board to the form, content and
manner of the references to the Company in any such announcements or releases unless and
to the extent that the announcement or release is required to be made by law or by a stock
exchange in respect of any act, omission or matter or contains information which is in the
public domain.
22.5
Each Shareholder nominating a Director must procure that its nominee Director complies with
this clause 22.
22.6
The obligations of confidentiality in this clause 22 survive termination of this agreement.
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23.
Nature of Relations
23.1
This agreement does not create a relationship of agency or partnership between the parties.
23.2
A Shareholder:
24.
(a)
is not liable for the acts or defaults of any other Shareholder; and
(b)
may act on its own behalf but not on behalf of any other Shareholder.
Co-operation
Each Shareholder must diligently and in good faith co-operate with the other Shareholders to
implement the shareholder arrangements contemplated by this agreement.
25.
Entire Agreement
When signed, the Transaction Documents constitute the entire agreement between the parties
in relation to their subject matter.
26.
Amendment
This agreement can only be amended by written agreement of the Company and all of the
Shareholders from time to time of the Company.
27.
No Waiver
27.1
A Shareholder only waives a breach of this agreement if the waiver is given in writing signed
by that Shareholder or its authorised representative. A waiver is limited to the instance
referred to in writing (or if no instance is referred to in the writing, to past breaches).
27.2
Failure or omission by any Shareholder to enforce compliance with any provision of this
agreement will not affect the rights of that Shareholder to use any remedy available to it in
respect of the breach of any such provision.
28.
Notice
28.1
Any notice, consent or agreement given in connection with this agreement must be in writing
and in English, and may be given by an authorised representative of the sender.
28.2
Notice may be given to a Shareholder:
(a)
personally;
(b)
by leaving it at the person's address last notified;
(c)
by sending it by pre-paid mail to the person's address last notified; or
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28.3
(d)
by sending it by facsimile to the person's facsimile number last notified; or
(e)
by sending it by email to the person's email address last notified.
Notice is deemed to be received by a Shareholder:
(a)
when left at the person's address;
(b)
if sent by pre-paid mail, three Business Days after posting or five Business Days in the
case of a notice sent to or from a place outside Australia;
(c)
if sent by facsimile at the time and on the day shown in the sender's transmission
report;
(d)
if sent by email at the time and on the day shown in the sender’s transmission report.
28.4
At the date of this agreement, the following addresses the last notified addresses of the
respective parties is as set out in the parties section of this agreement.
28.5
A Shareholder may change its address or facsimile number for service by giving at least one
Business Day's notice to the other party.
29.
Costs
29.1
To be dealt with in accordance with clause 17 of the Subscription Agreement.
30.
Governing law
30.1
This agreement is governed by the laws of New South Wales. Each party irrevocably submits
to the non-exclusive jurisdiction of the courts of New South Wales and the courts of appeal
from them in respect of any disputes arising under or relating to this Agreement.
30.2
No party may object to the jurisdiction of any of those courts on the ground that it is an
inconvenient forum or that it does not have jurisdiction.
31.
Counterparts
This agreement may be executed in any number of counterparts. A counterpart may be a
facsimile. Together all counterparts make up one instrument.
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Execution
Executed as an agreement on
2016
Signed for and on behalf of [insert company name] Pty Ltd
(ABN):
…..............................................................
Director
….................................................................
Director/ Secretary
…..............................................................
Name (please print)
….................................................................
Name (please print)
Signed for and on behalf of [investor]
(ABN):
…..............................................................
Director
….................................................................
Director/ Secretary
…..............................................................
Name (please print)
….................................................................
Name (please print)
Signed by [Founding Shareholder]:
…..............................................................
Witness
….................................................................
Founding Shareholder
…..............................................................
Name (please print)
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Schedule 1 - Terms of Issue of Preference Shares
1.
Liquidity Preference
(a)
If there is a Liquidity Event, the aggregate proceeds form a Liquidity Event available
for distribution to members must be applied in the following order of priority:
(1)
first, to pay to each holder of Preference Shares the aggregate amount paid or
credited as paid on the Preference Shares held by such holder (Principal
Amount);
(2)
second, to pay the amount of any accrued but unpaid dividends declared prior
to or in the course of the applicable Liquidity Event (Dividend Entitlement);
and
(3)
lastly, to pay the balance of any amounts remaining amongst all Shareholders
in proportion to the number of Shares held (on an as converted basis).
For the avoidance of doubt, where the Liquidity Event is a sale of all or substantially all
of the Shares in the Company, the Shareholders agree that the aggregate proceeds
from the sale available for distribution will be distributed as and amongst the
Shareholders in accordance with this clause 1(a).
2.
Conversion
(a)
Conversion at option of the holder
(1)
A holder of Preference Shares may, at any time, by giving notice to the Company,
elect to convert all or some of their Preference Shares into ordinary Shares at the
conversion rate in clause 2(c) of these terms of issue.
(2)
The Company must, within 5 Business Days after receipt by the Company of a
conversion notice, convert the number of Preference Shares specified in the
conversion notice into fully paid ordinary Shares at the conversion rate.
(b)
Conversion by Company
(1)
The Preference Shares may be converted by the Company immediately prior to the
issue of shares under an initial public offering of the Company’s securities and the
proposed quotation of those securities on a recognised stock exchange.
(c)
Conversion Rate
(1)
The conversion rate of Preference Shares into ordinary Shares is one to one.
(2)
In the event of a reconstruction (including bonus issues, consolidation, subdivision,
reduction or return) of the issued capital of the Company, the Company shall
reconstruct the basis for conversion of the Preference Shares, in the same proportion
as the issued capital of the Company is reconstructed and in a manner which will not
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result in any additional benefits being conferred on any holder of Preference Shares
which are not otherwise conferred on the other Shareholders and vice versa.
3.
4.
5.
Dividends
(a)
If the Company pays any dividends to holders of ordinary Shares it must likewise pay
the same dividend to the holders of the Preference Shares.
(b)
No dividend may be paid to the holder of any other class of Shares while any amounts
are due to be paid to the holders of Preference Shares.
Voting and Meetings
(a)
A holder of Preference Shares is entitled on a poll, one vote for each ordinary Share
into which the Preference Shares held by the Preference Shares Shareholder are
convertible.
(b)
A holder of Preference Shares is entitled to receive notice of any general meeting of
the Company and a copy of every report, audited accounts, circular or other document
sent out by the Company to holders of ordinary Shares and to attend and vote at any
general meeting of the Company as though they held ordinary Shares.
Redemption
(a)
A holder of Preference Shares may require the Company to redeem all or some of the
Preference Shares held by such holder for the Principal Amount in respect of the
relevant Preference Shares by giving notice to the Company, if:
(1)
any Event of Default occurs in respect of the Company and the holder gives
the Company the redemption notice within 30 days of being notified of the
Event of Default. For this purpose, the Company must immediately advise
each of the holders of Preference Shares of the occurrence of an Event of
Default;
(b)
If a holder of Preference Shares gives a redemption notice, the Company must,
subject to the Corporations Act, redeem the Preference Shares the subject of the
redemption notice within 90 days of receipt by the Company of the redemption notice.
(c)
If, by reason of any provisions of the Corporations Act, the Company is unable to
redeem in full the Preference Shares required to be redeemed:
(1)
the Company must, redeem as many of the Preference Shares to be
redeemed as it may lawfully redeem and must redeem the balance as soon as
it may lawfully do so. If the Preference Shares of more than one holder are to
be redeemed, the Company must redeem the Preference Shares in the same
proportion that the relevant holders’ Preference Shares bears to the total
number of Preference Shares;
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(2)
the Company must not pay a dividend or make a distribution or return any
capital to the holder of any other class of Share until all such Preference
Shares have been redeemed; and
(3)
the holders of the Preference Share may require the Company to undertake a
selective buyback of the relevant Preference Share that the Company is not
able to redeem. For this purpose, all Shareholders agree to do everything
necessary to give effect to the selective buyback.
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Schedule 2 - Critical Business Matters
The following matters require Directors Special Majority Approval:[these are examples, you may add
on to this list as negotiated and agreed with your investors]

(Auditors) appointing or removing or varying the terms of appointment of the auditors of the
Company;

(Board) increasing the size of the Board;

(Budget) adopting a budget or varying the budget for the Company;

(Business) acquiring a business or entering into a new business or the merger or
amalgamation of the Company with any other entity;

(Business plan) adopting a Business Plan for the Company or any material deviation from
the Business Plan;

(Constitution): varying or adding to the terms (including by replacing in whole or in part) of
the constitution of the Company;

(Cessation or sale of business) ceasing to carry on the Company Business or resolving to
wind up or otherwise liquidate the Company or the sale (or other disposal) of substantially the
whole of the business and undertakings of the Company;

(Directors’ fees) approving Directors’ fees;

(Dividends) determining the Company’s dividend policy and declaring of any dividend;

(Employee incentive plan) adopting or amending the terms of any employee incentive plans
for the Company which shall include, for the avoidance of doubt, any increase to the allocation
to the employee incentive plans;

(Intellectual property) entering into any agreement or transaction for the disposal to any
third party of any intellectual property rights other than in the ordinary course of the Company
Business;

(Investor Materials) the creation, variation, adoption, or distribution of any fundraising
materials to be provided to prospective investors including slideshow presentations, financial
forecasts, operating budgets, investor memorandums, executive summaries, business plans,
or similar due diligence materials for the purpose of raising external capital;

(Variation, buyback or cancellation) varying the rights attached to any shares or agreeing to
buyback or cancel any shares;

(Litigation) commencing, defending or compromising litigation or a similar procedure involving
a claim of more than A$50,000;
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
(Ordinary course) entering into an arrangement or incurring a liability which is not in the
ordinary course of Company Business, including a capital expenditure of more than $50,000,
other than as provided for in the Business Plan;

(Provision of financial accommodation) providing or varying the terms of financial
accommodation;

(Related party arrangements) entering into an agreement or arrangement with a
Shareholder or any of their associates or related entities (both as defined by the Corporations
Act);

(Sale of assets) selling or agreeing to sell any one asset or series of related or interconnected
or operationally independent assets valued at greater than $50,000, other than as provided for
in the Business Plan;

(Security interest) creating a security interest over any assets or undertaking of the
Company;

(Shares) the issuance of any shares, other than permitted issues of shares as set out in
clause 16.1;

(Winding up and reorganisations) making any decision to undertake a scheme of
arrangement or amalgamation, appoint an administrator of the Company or wind up the
Company voluntarily, make a reduction, conversion, consolidation, division or other
reconstruction of the Company’s share capital or execute a deed of company arrangement;

(Key Persons) the appointment of the Company Chief Executive, directly reports to the Board
and any Directors and the Founder appointed Director.

(Debt/Borrowing) Any borrowings or financial accommodation or the creation of any debt
instruments (including, the grant of any mortgage, charge or other security interest over or
negative pledge in respect of any assets of the Company or the issue of any guarantee for
debts of third parties) of an amount in excess of A$100,000 by or to the Company.

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Annexure A- Constitution
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Annexure B– Deed of Accession
Parties
1.
[Name/Company Name] ACN [#] of [address] (Acceding Party)
2.
[insert details] (Company)
Introduction
A.
This deed is supplemental to a shareholders agreement of the Company dated [#]
(Shareholders Agreement).
B.
The Acceding Party proposes to become a shareholder of the Company and agrees to be
bound by the Shareholders Agreement.
Operative clauses
1. Agreement to be bound
1.1
The Acceding Party confirms that it has been provided with a copy of the Shareholders
Agreement.
1.2
The Acceding Party respectively covenants with all those parties to the Shareholders
Agreement and the Company:
(a)
to observe and be bound by the terms of the Shareholder’s Agreement so that the
Acceding Party is deemed, from the time that the Acceding Party becomes a
Shareholder in the Company, to be a party to the Shareholder’s Agreement; and
(b)
to be bound by the replaceable rules or constitution of the Company from time to time.
2.
Warranties
2.1
Each party to this deed respectively represents and warrants to the other party that:
(a)
it is duly incorporated in the jurisdiction in which it is incorporated;
(b)
it has the power to enter into and perform this deed and has obtained all necessary
consents and authorisations to enable it to do so;
(c)
the entry into and the performance of this deed does not constitute a breach of any
obligation (including without limitation, any statutory, contractual or fiduciary
obligation) or default under any agreement or undertaking by which it is bound; and
(d)
this deed constitutes valid and binding obligations on it enforceable in accordance with
its terms.
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3.
Operation of this deed
This deed is to take effect upon execution by both the Acceding Party and the Company and is
to operate and be interpreted according to the provisions of the Shareholders Agreement.
4.
Counterparts
This deed may be executed in any number of counterparts. A counterpart may be a facsimile.
Those counterparts together constitute one instrument.
Executed as a deed on
Signed by [Company Name]
in the presence of:
…..............................................................
Director
…..............................................................
Director/Company Secretary
…..............................................................
Name (please print)
…..............................................................
Name (please print)
Signed for and on behalf of [Acceding Party]:
…..............................................................
Director
…..............................................................
Director/Company Secretary
…..............................................................
Name (please print)
…..............................................................
Name (please print)
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