Fillable Printable Sample Unanimous Shareholder Agreement

Sample Unanimous Shareholder Agreement

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Sample Unanimous Shareholders Agreement

[NAME OF CORPORATION]

SHAREHOLDERS AGREEMENT

THIS SHAREHOLDERS AGREEMENT is made as of the ____ day of _____, ___

between [corporation name]., a corporation incorporated under the laws of [Canada or Ontario]

(the “Corporation”); [name of founder1], an individual residing in the city of [name of city], in

the Province of Ontario (“last name of Founder 1”); [name of Founder 2], an individual residing

in the city of [name of city], in the Province of Ontario (“last name of Founder2”); each investor

listed on Schedule “A” annexed hereto; and any person who becomes a party hereto by executing

an acknowledgement in the form annexed hereto as Schedule “B”.

RECITALS:

WHEREAS the parties hereto, other than the Corporation, together own, directly or

indirectly, all of the issued and outstanding shares in the capital of the Corporation as of the date

hereof;

AND WHEREAS the parties hereto wish to record their agreement as to the manner in

which the Corporation’s affairs are to be conducted and to agree upon the terms on which the

securities of the Corporation, now or hereafter outstanding and held by them, will be held,

transferred and voted;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the

premises and the mutual covenants and agreements herein contained the parties hereto covenant

and agree as follows:

Sample Unanimous Shareholders Agreement

ARTICLE 1

DEFINITIONS AND PRINCIPLES OF INTERPRETATION

1.1 Definitions

Whenever used in this Agreement, the following words and terms have the meanings set

out below:

(a) “Act” means the [Ontario Corporations – enter act that is relevant to your

incorporation as appropriate Canada Business Corporations Act or Ontario

Business Corporations Act. For Corporations incorporated and operating outside

Ontario, legal advice should be sought as to changes required in agreement to

comply with local restrictions], as the same may be amended from time to time;

(b) “Affiliate” of a Person means another Person where:

(i) one of them is a Subsidiary of the other; or

(ii) each of them is Controlled by the same Person.

all instruments supplemental to or in amendment or confirmation of this

Agreement;

(d) “arm’s length” has the meaning that it has for purposes of the Income Tax Act

(Canada);

(e) “Articles” means the articles of incorporation of the Corporation, as amended

from time to time;

(f) “Board” means the board of directors of the Corporation, as the same may be

constituted from time to time in accordance with this Agreement;

(g) “Business Day” means any day except Saturday, Sunday or any statutory holiday

in the Province of Ontario;

(h) “Class A Preferred Shares” means the Class A Preferred Shares in the capital of

the Corporation;

(i) “Common Shares” means the Common Shares in the capital of the Corporation;

(j) “Competitor” means any business which is, at the relevant time, engaged in the

design, development, marketing, sale or licensing of any products or services that

are in form and function competitive with any of the products and services that

are marketed and sold or licensed by the Corporation or any product or service

that is known by a Shareholder to be under development by the Corporation;

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Sample Unanimous Shareholders Agreement

(k) “Control” means: (a) with respect to any corporation, the ownership, beneficially

and legally, of voting securities in the capital of such corporation, to which are

attached more than fifty percent (50%) of the votes that may be cast to elect the

directors of such corporation and such votes are sufficient (if exercised) to elect a

majority of the directors; and (b) with respect to a partnership, trust, syndicate or

other entity, actual power or authority to manage and direct the affairs of, or

ownership of more than fifty percent (50%) of the beneficial interest in such

entity;

(l) “Family Members” means, in respect of an individual, any parent, spouse, child,

spouse of a child, grandchild and/or sibling;

(m) “Founders” means [last name of Founder 1] and [last name of Founder 2], and

“Founder” means any one of them;

(n) “Founder Shares” means the Common Shares held by the Founders;

(o) “Initial Public Offering” shall mean the Corporation’s first underwritten public

offering of its Common Shares pursuant to a registration statement that has been

declared effective under the United States Securities Act of 1933 or a prospectus

filed under applicable Canadian securities laws in respect of which a (final)

receipt has been obtained, accompanied by the listing of the Common Shares on

the Toronto Stock Exchange and/or the Nasdaq National Market and/or the New

York Stock Exchange and/or any other stock exchange or market approved in

writing by a Preferred Majority;

(p) “Investor” means each Person listed on Schedule “A” annexed hereto under the

heading “Investors”, so long as such Person holds Class A Preferred Shares,

together with any other Person that becomes a Party to this Agreement as a holder

of Class A Preferred Shares (including Permitted Transferees of Class A Preferred

Shares); and “Investors” means all of such Persons collectively;

(q) “Major Investor” means any holder of at least [percentage of shares needed to

qualify as Major Investor for information and pre-emptive rights as agreed in term

sheet]% of Class A Preferred Shares;

(r) “Parties” means, collectively, the Shareholders, the Founders, and the Corporation

and any other Person that becomes a party to this Agreement, and “Party” means

any one of them;

(s) “Permitted Additional Securities” means:

(i) up to [number of shares in stock option pool] Common Shares issued or

issuable pursuant to the Stock Plan (including all Common Shares issuable

on the exercise of options granted under the Stock Plan or proposed for

grant under the Stock Plan to the date hereof, and options to purchase such

Common Shares) (subject to appropriate adjustment for any share

dividends, share splits, recapitalizations, combinations or the like affecting

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Sample Unanimous Shareholders Agreement

the Common Shares) or such greater number of Common Shares as

approved by the Board and a Preferred Majority;

(ii) any Common Shares offered to the public pursuant to a Qualified IPO; and

(iii) any Common Shares issued on the conversion of, or as a dividend or

distribution on, the Class A Preferred Shares, or, if applicable, as a result

of the adjustment of the Class A Conversion Price (as such term is defined

in the Articles);

(t) “Permitted Transferee” means any Person to whom Shares are transferred

pursuant to Section 6.4;

(u) “Person” includes any individual, sole proprietorship, partnership, unincorporated

association, unincorporated syndicate, unincorporated organization, trust, body

corporate, and a natural Person in his capacity as trustee, executor, administrator,

or other legal representative;

(v) “Preferred Majority” means shareholders holding more than fifty percent (50%)

of the outstanding Class A Preferred Shares;

(w) “Qualified IPO” has the meaning given to it in the Articles;

(x) “Shares” means, collectively, the Common Shares and the Class A Preferred

Shares;

(y) “Shareholder Majority” means Shareholders holding more than fifty per cent of

the outstanding Shares;

(z) “Shareholders” means the Founders and the Investors, together with such other

Persons as may become Parties to this Agreement as a shareholder of the

Corporation, collectively, and “Shareholder” means any one of such Persons

individually;

(aa) “Stock Plan” means the Corporation’s [existing stock option plan enacted on

[insert date]or[stock option plan to be implemented with approval of the Board

after issuance of the Class A Preferred Shares] and as it may be amended from

time to time, providing for the issuance of Common Shares to eligible employees,

consultants, directors, vendors and any other parties approved by the Board;

(bb) “Subsidiary” means a Person that is controlled directly or indirectly by another

Person; and

(cc) “Transfer” means any disposition, transfer, sale, exchange, assignment, gift,

bequest, disposition, mortgage, hypothecation, charge, pledge, encumbrance,

grant of security interest, or any arrangement by which possession, legal title or

beneficial ownership passes, directly or indirectly, from one person or entity to

another, or to the same person or entity in a different capacity, whether or not

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Sample Unanimous Shareholders Agreement

voluntary and whether or not for value, and includes any agreement to effect the

foregoing.

1.2 Additional Definitions

Unless there is something inconsistent in the subject matter or context, or unless

otherwise provided in this Agreement, all other words and terms used in this Agreement that are

defined in the Act have the meanings set out in the Act.

1.3 Certain Rules of Interpretation

In this Agreement:

(a) Consent - Whenever a provision of this Agreement requires an approval or

consent and such approval or consent is not delivered within the applicable time

limit, then, unless otherwise specified, the Party whose consent or approval is

required is conclusively deemed to have withheld its approval or consent.

(b) Governing Law - This Agreement shall be governed by and construed in

accordance with the laws of the Province of Ontario, without regard to the

province’s conflict of law provisions, and each of the Parties irrevocably agrees to

submit to the exclusive jurisdiction of the courts of such province for and in

connection with any proceedings relating to this Agreement.

reference only and do not affect the construction or interpretation of this

Agreement.

(d) Including - Where the word “including” or the word “includes” is used in this

Agreement, it means “including (or includes) without limitation”.

(e) Number and Gender – Unless the context otherwise requires, words importing

the singular include the plural and vice versa and words importing gender include

all genders.

(f) Severability – If, in any jurisdiction, any provision of this Agreement or its

application to any Party or circumstance is restricted, prohibited or unenforceable,

such provision is, as to such jurisdiction, ineffective only to the extent of such

restriction, prohibition or unenforceability without invalidating the remaining

provisions of this Agreement and without affecting the validity or enforceability

of such provision in any other jurisdiction or without affecting its application to

other Parties or circumstances.

(g) Time – Time is of the essence in the performance of the Parties’ respective

obligations.

(h) Time Periods - Unless otherwise specified, time periods within or following

which any payment is to be made or act is to be done are calculated by excluding

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Sample Unanimous Shareholders Agreement

the day on which the period commences and including the day on which the

period ends and by extending the period to the following Business Day if the last

day of the period is not a Business Day.

(i) Currency - Unless otherwise indicated all dollar amounts referred to in this

Agreement, including the symbol “$”, refer to lawful money of Canada.

ARTICLE 2

PURPOSE AND SCOPE

2.1 Compliance with Agreement

Each Shareholder agrees to vote and act as a shareholder of the Corporation to fulfil the

provisions of this Agreement and in all other respects to comply with, and use all reasonable

efforts to cause the Corporation to comply with, this Agreement, and to the extent, if any,

permitted by law, shall cause its respective nominee(s) as directors of the Corporation to act in

accordance with this Agreement. The Shareholders further undertake that they will use their

influence as Shareholders to cause such meetings of the Corporation to be held, resolutions

passed, by-laws enacted, agreements and other documents signed and acts or things performed or

done as may be necessary or desirable to ensure that the provisions of this Agreement are

implemented and given full force and effect.

2.2 Compliance by Corporation

The Corporation undertakes to carry out and be bound by the provisions of this

Agreement to the full extent that it has the capacity and power at law to do so.

2.3 Conflict with Articles or By-laws

To the extent permitted by the Act, in the event of any conflict between the provisions of

this Agreement and the provisions of the Articles or the by-laws of the Corporation, the

provisions of this Agreement shall prevail, and the Shareholders shall vote to amend the Articles

and by-laws of the Corporation so as to ensure conformity with the terms of this Agreement.

2.4 Agreement to Vote Shares

In the event that any action requiring approval pursuant to Section 4.3 of this Agreement

is approved by the Board and the requisite number of Investors (a “Special Action”), each

Shareholder agrees that it shall execute and deliver all deeds, transfers, consents, resolutions,

share certificates or other documents as may be necessary to complete the Special Action and

shall vote its Shares in favour of all resolutions relating to the Special Action at any meeting of

shareholders of the Corporation or execute all written shareholder consents and resolutions

relating to the Special Action and the completion of the transaction contemplated thereunder,

and, each Shareholder hereby expressly waives any right to dissent with respect to any such

actions which are required for the purpose of any such Special Action. However, this Section 2.4

applies only if all Shares of a particular class are treated in a similar manner.

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Sample Unanimous Shareholders Agreement

2.5 Unanimous Shareholder Agreement

(a) This Agreement is deemed to be a unanimous shareholder agreement within the

meaning of the Act, and the power of the directors to manage or supervise the

management of the business and affairs of the Corporation is restricted in

accordance with the terms of this Agreement.

(b) No amendment to this Agreement that affects the rights, powers and duties of any

of the directors is effective until the directors are given written notice of the

proposed amendment and an opportunity to resign.

ARTICLE 3

FINANCIAL PARTICIPATION IN THE CORPORATION

3.1 Equity Participation

Each of the Shareholders represents and warrants to each other and to the Corporation

that:

(a) such Shareholder at the date hereof (or, if such Shareholder becomes a Party

following the date of this Agreement, at the date such Shareholder acquired its

Shares), owns beneficially and of record the number of Shares set forth opposite

such Shareholder’s name on Schedule “A” or Schedule “A-1” attached hereto, as

applicable (as such schedules may be amended from time to time to reflect

changes in shareholdings);

(b) the Shares held by such Shareholder are held beneficially and of record by such

Shareholder, such Shares are not subject to any mortgage, lien, charge, pledge,

encumbrance, security interest or adverse claim and no Person has any rights to

become a holder or possessor of any of the Shares or of the certificates

representing the same, if applicable;

into and give full effect to this Agreement;

(d) if the Shareholder is a corporation, that it is duly incorporated and validly existing

under the laws of its jurisdiction of incorporation and that it has the corporate

power and capacity to own its assets and to enter into and perform its obligations

under this Agreement;

(e) if the Shareholder is a trust, partnership or joint venture, that it is duly constituted

under the laws that govern it and that it has the power to own its assets and to

enter into and perform its obligations under this Agreement;

(f) this Agreement has been duly authorized by such Shareholder and duly executed

and delivered by such Shareholder and constitutes a valid and binding obligation

enforceable in accordance with its terms, subject to the usual exceptions as to

bankruptcy and the availability of equitable remedies;

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Sample Unanimous Shareholders Agreement

(g) that the execution, delivery and performance of this Agreement does not and shall

not contravene the provisions of its articles, by-laws, constating documents or

other organizational documents or the documents by which such Shareholder was

created or established or the provisions of any indenture, agreement or other

instrument to which such Shareholder is a party or by which such Shareholder

may be bound; and

(h) that, subject to the terms of this Agreement, all of the foregoing representations

and warranties (other than the representation and warranty in paragraph (a)) shall

continue to be true and correct during the continuance of this Agreement.

ARTICLE 4

MANAGEMENT OF THE CORPORATION

4.1 Board of Directors

The Corporation shall have a Board consisting of up to three (3) directors, of which:

(a) one director shall be nominated by the Founders (the “Founder Nominee”), who

shall initially be [director’s name];

(b) one director shall be nominated by the holders of the Class A Preferred Shares

(the “Investor Nominee”), who shall initially be [director’s name];

“Common Nominee”) and be acceptable to the Corporation, the Investor Nominee

and the Founders, who shall initially be [director’s name].

Each Shareholder shall vote its Shares at any meeting at which directors are to be elected,

or execute any written resolutions of the shareholders at the request of the Corporation, to elect

the directors nominated in accordance with this Agreement.

4.2 Removal and Replacement of Nominees

Any Shareholder (or group of Shareholders) entitled to nominate and elect a director may

remove any such director by notice to such director, the other Shareholders and the Corporation.

Any vacancy occurring on the Board by reason of the death, disqualification, inability to act,

resignation or removal of any director may be filled only by a further nominee of the Shareholder

or Shareholders whose nominee was so affected so as to maintain a Board consisting of the

nominees specified in Section 4.1.

4.3 Matters Requiring Prior Approval.

In addition to any approval, authorization or ratification required by the Act, none of the

following shall be carried out and effected by the Corporation without the prior approval of the

Board and the prior written approval of the Preferred Majority:

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Sample Unanimous Shareholders Agreement

(a) any amendment to the Articles or by-laws of the Corporation that would adversely

alter the rights, preferences, privileges or powers of the Class A Preferred Shares;

(b) any changes in the number of directors of the Corporation;

other body corporate; or

(d) the disposition of all or substantially all of the assets of any wholly owned

subsidiary of the Corporation or the disposition of any shares of any wholly

owned subsidiary of the Corporation.

ARTICLE 5

COVENANTS OF THE CORPORATION

5.1 Information Rights

The Corporation shall prepare and deliver to each of the Major Investors:

(a) as soon as available after the end of each financial year, unaudited financial

statements of the Corporation, including consolidated balance sheets of the

Corporation and its subsidiaries, if any, as at the end of such financial year, and

consolidated statements of income, retained earnings and changes in cash flow of

the Corporation and its subsidiaries, if any, for such year, setting forth in each

case in comparative form the corresponding figures for the previous financial

year, all prepared in accordance with generally accepted accounting principles in

Canada;

(b) as soon as available after the end of each quarter, a report prepared by the

management of the Corporation regarding such quarter’s financial results and

operations;

plan together with an operating and capital expenditure budget of the Corporation

(the “Annual Budget”) as approved by the Board;

(d) such other financial and business information as any Investor may reasonably

request from the Corporation from time to time.

5.2 Other Covenants

Without limiting any other covenants and provisions hereof, and except to the extent the

following covenants and provisions of this Section 5.2 are waived in any instance by the holders

of Preferred Majority, the Corporation covenants and agrees that it shall perform and observe the

following covenants and provisions, and shall cause each of its subsidiaries, if and when such

subsidiary exists, to perform and observe such covenants and provisions. The covenants in this

Section 5.2 are for the exclusive benefit of the Investors.

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Sample Unanimous Shareholders Agreement

(a) Financings.

The Corporation shall inform the Board of any negotiations, offers or contracts relating to

possible financings of any nature for the Corporation, whether initiated by the Corporation or

any other Person, except for (A) arrangements with trade creditors, and (B) utilization by the

Corporation of commercial lending arrangements with financial institutions.

(b) Proprietary Information and Inventions Agreements.

The Corporation shall obtain a duly executed agreement relating to proprietary

information and assignment of inventions on terms and conditions acceptable to the Board, from

each current and future technical or senior managerial employee, contractor and consultant of the

Corporation.

The Corporation shall ensure that all key employees of the Corporation enter into

appropriate employment contracts containing appropriate confidentiality, non-compete and non-

solicit covenants that are acceptable to the Board.

ARTICLE 6

DEALING WITH SHARES

6.1 Restrictions on Transfer of Shares

(a) No Shareholder shall Transfer any Shares to any Person, except as specifically

permitted or required by this Agreement and only in accordance with the terms of

this Agreement. The Corporation shall not be required: (A.) to Transfer on its

books any Shares, nor (B.) to treat as the owner of the Shares, or otherwise to

accord voting or dividend rights to, any transferee to whom the Shares have been

Transferred in contravention of this Agreement.

(b) Every Transfer of Shares held by a Shareholder is subject to the conditions that:

(i) the proposed transferee, if not already bound by the terms of this

Agreement, first agrees, in writing, to become a party to and be bound by

the terms of this Agreement by signing an acknowledgment substantially

in the form annexed hereto as Schedule “B”;

(ii) the Transfer is approved in accordance with the Articles; provided, that,

any Transfer referred to in Section 6.1(a) or that is otherwise a permitted

Transfer pursuant to this Agreement shall be deemed to be consented to by

the Shareholders for the purposes of any restrictions on Transfer in the

Articles; and

(iii) the Shareholder shall have provided the Corporation with written

assurances, in form and substance satisfactory to the Corporation, that:

(A.) the proposed Transfer is exempt from the registration and prospectus

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Sample Unanimous Shareholders Agreement

requirements of all applicable securities laws, and (B.) all appropriate

action necessary for compliance with applicable securities laws and

regulatory policies in connection with such proposed Transfer have been

taken.

Party hereto, and the issuance of Shares to any such Person shall not be approved

by the Board, unless either (a) such Person has agreed to become a Party hereto

and bound by all the provisions hereof by signing an acknowledgment

substantially in the form annexed hereto as Schedule “B” and provided that such

Person is not engaged in the business of a Competitor of the Corporation; or (b)

such Person is subject to a Share Restriction Agreement. All future grantees of

options to purchase Shares or securities of the Corporation convertible into Shares

shall be required, as a condition to the exercise or conversion of any such options

or convertible securities, either (a) to enter into an appropriate written contractual

obligation to become a Party to and bound by this Agreement; or (b) to become a

party to a Share Restriction Agreement.

6.2 Endorsement on Certificates

In addition to such legends as may be required by applicable securities laws, share

certificates of the Corporation shall bear the following language either as an endorsement or on

the face of such share certificate:

“The shares represented by this certificate are subject to all the

terms and conditions of a Shareholders Agreement made as of

[date of shareholders agreement] as it may be amended from time

to time, which agreement contains, among other things, restrictions

on the right of the holder hereof to transfer or sell the shares. A

copy of such agreement is on file at the registered office of the

Corporation.”

6.3 Pre-Emptive Rights

(a) Subject to paragraphs (b) and (c), if any shares or other securities of the

Corporation, or options, rights, warrants or other instruments to purchase shares,

or securities convertible into or exchangeable directly or indirectly for shares

(including any newly created class or series) (collectively referred to in this

Section as “Additional Securities”), are to be issued, the Corporation shall first

offer such Additional Securities to the Major Investors by notice given to them of

the Corporation’s intention to issue Additional Securities and the number and

purchase price of such Additional Securities to be so issued. Each of the Major

Investors may purchase its Pro Rata Share (as such term is defined below) of the

Additional Securities so offered. Each Major Investor’s “Pro Rata Share” of the

Additional Securities shall be equal to the total number of Additional Securities so

offered, multiplied by the quotient of X/Y, where X is equal to the number of

Class A Preferred Shares that the Major Investor holds, and Y is equal to the

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