November 16, 2011
[IMPORTANT: This sample agreement is for reference purpose only for members of the Hong Kong Business Angel Network. In the angel investment context, many factors involving the founders, the business, the stage of the start-up, the type of investors will vary, and the provisions in this sample agreement may or may not properly and appropriately address the requirements of the parties in any particular situation. Further, prevailing investment terms and practices vary across localities; those in Hong Kong may deviate significantly from those in Silicon Valley.
Lister Lo Lui & Choy (in association with Edwards Wildman Palmer) takes no responsibility for the contents of this sample agreement and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the content of this sample agreement. If you are in doubt with any aspect of this sample agreement, you should consult your legal adviser. All rights reserved. ]
Dated201X
(1)A
(2)B
(3)C LIMITED
(4)ABC LIMITED
SHAREHOLDERS AGREEMENT
relating to
ABC LIMITED
THIS AGREEMENT is made on201X
AMONG:
1.A, a [Hong Kong] resident (ID:[*]) of [address] (“Party A”);
2.B, a [Hong Kong] resident (ID:[*]) of [address](“Party B”);
3.C LIMITED, a company incorporated in [Hong Kong / the British Virgin Islands] whose registered office is at [address] (“Party C”); and
4.ABC LIMITED, a company incorporated in Hong Kong whose registered office is at [address] (the “Company”).
WHEREAS:
(A)The Company was incorporated in Hong Kongon [date] with an authorised share capital of US$10,000 divided into 10,000 shares of HK$1 each.
(B)It is the intention of Parties A, B and C that the Company be a corporate vehicle for their joint participation in the Business (or through the Subsidiaries and/or Associated Companies of the Company).
(C)Parties A, B and C wish to regulate their conduct of the Business on the terms set out herein.
IT IS HEREBY AGREED as follows:
1.INTERPRETATION
1.1In this Agreement unless the context requires otherwise, the following words and expressions shall have the following meanings:
“Articles”articles of association of the Company
“Associated Companies”in relation to a company, means any other company in which such company has an interest of not less than [20%]of the equity voting rights
“Auditors”[name of firm] (or such other auditors of the Company from time to time appointed)
“Board”board of directors of the Company as constituted from time to time
“Business”business of the Company as described in Clause 2
“Companies Ordinance”Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“Deed of Adherence”deed of adherence, the form of which is set out in Schedule 2
“Defaulting Party”any Shareholder who is in breach of its obligations hereunder
“Directors”directors of the Company
“Encumbrance”any mortgage, pledge, lien, charge, equity, third party right, option, right of pre-emption or any other encumbrance, priority or security interest or arrangement of whatsoever nature and references to Encumbrancer shall be construed accordingly
“Event of Default”any of the events specified in Clause 9.4
“Financial Year”[˙]
“Founders”collectively Party A and Party B; and “Founder” for each of Party A and Party B
“HK$”Hong Kong dollars
“Hong Kong”Hong Kong Special Administrative Region of the People’s Republic of China
“Investor”Party C
“Sale Value”as defined in Clause 9.2
“Shareholders”registered holders of the Shares from time to time
“Shares”shares of HK$[1.00] each in the Company
“Simple Majority”a majority of the Board or of Shareholders which majority shall be comprised of nominees of Shareholders or Shareholders holding more than 50%of all Shares issued by the Company
“Special Majority”a majority of the Board or of Shareholders which majority shall be comprised of nominees of Shareholders or Shareholders holding 75% or more of all Shares issued by the Company
“Subsidiary”
and “Holding Company”as defined in the Companies Ordinance
1.2In this Agreement:
(a)the Recitals and the Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement and any reference to this Agreement shall be to this Agreement as from time to time supplemented, varied or amended and shall include the Recitals and Schedules;
(b)statutes or statutory provisions shall be construed as references to those statutes or provision as amended from time to time (whether before or after the date of this Agreement) and to any orders, regulations, instruments or subordinate legislation under the relevant statute or statutory provision;
(c)a “person” shall include any person, body corporate, association, entity or partnership (whether or not having separate legal personality) and “parties” shall mean parties to this Agreement;
(d)the headings are for convenience only and shall not affect the construction of this Agreement;
(e)the masculine gender shall include the feminine and neuter, and the singular number shall include the plural, and vice versa;
(f)save as otherwise specified herein, any approval, agreement or consent of the Shareholders or Directors or any majority thereof required by this Agreement shall be deemed duly given in a duly convened general meeting of the Company or meeting of the Directors or in writing in accordance with the Articles; and
(g)unless otherwise specified, all acts required to be done under this Agreement on a day which is not a business day shall be done on the next business day.
2.BUSINESS
The Company shall carry on the business of [insert relevant particulars giving a precise description of the purpose of the Company] and other businesses as from time to time agreed in writing by the Shareholders.
3.TRANSFER OF SHARES
3.1The transfer of Shares shall be regulated in accordance with the provisions set out in the this Clause, and no sale, transfer, disposal, charging or encumbrance of any interest of any nature in any Share shall be made except in accordance herewith.
3.2Each of the Shareholders hereby undertakes that if it shall transfer any of its Shares (or any interest therein) it shall require the transferee to execute a Deed of Adherence (attached to this Agreement as Schedule 2) which the Company shall execute for itself and on behalf of any as agent of all parties to this Agreement for the time being (which the parties irrevocably authorise the Company to do), and the compliance with this Clause shall be a condition precedent to registration of any such transfer.
3.3No Shareholder shall transfer any interest in any Share without at the same time assigning to the transferee a proportion of any amounts owed to it by the Company equal to the proportion that the interest transferred bears to the total number of Shares in which the Shareholder is then beneficially interested.
3.4Notwithstanding the other provisions of this Clause and provided in each case the provisions of Clause 3.2 are complied with, a Shareholder may sell, assign or transfer all but not a part only of its Shares to a Subsidiary or Holding Company of such Shareholder or a Subsidiary of such Holding Company and any such person so holding such Shares may in turn sell, assign or transfer such Shares to any other Subsidiary or Holding Company of the said original Shareholder or a Subsidiary of such Holding Company at any time, provided that when such a person so holding such Shares ceases to be a Subsidiary or Holding Company of the said original Shareholder or a Subsidiary of such Holding Company, such Shares shall be transferred to the said original Shareholder and each such person hereby authorises the Company to execute on its behalf all documents necessary to effect such transfer.
3.5No Shareholder [or Founder] shall dispose of any interest of any nature in any Shares for the time being owned by it to a third party unless such Shareholder [or Founder] (the “Offeror”) shall have first notified the Company and all other Shareholders (the “Offeree”) offering such Shares (the “Offered Shares”) on the same or more favourable terms and any such offer shall remain open for acceptance for 30 days.
3.6The notice (the “Offer Notice”) in respect of the offer for sale of the Offered Shares shall contain the following:
(a)the offer price for each of the Offered Shares and the number of Offered Shares to which such Offeree is entitled to purchase (which shall be determined by referring to that Offeree’s Applicable Percentage);
(b)other principal terms and conditions subject to which the Offered Shares shall be sold [(which shall include a condition that all, but not part, of the Offered Shares shall be so sold)]; and
(c)a request to the Offeree to indicate its willingness to purchase Shares in excess of its entitlement if any other Offeree declines the Offeror’s offer.
3.7For the purpose of Clause 3.6, “Applicable Percentage” shall mean the percentage determined by dividing (i) the number of the Shares held by that Shareholder as at the date of the Offer Notice by (ii) the aggregate number of Shares then held by all Shareholders other than the Offeror.
3.8Each Offeree shall be entitled to purchase the Offered Shares by giving written notice to the Offeror and the Company within 30 days from the date of the Offer Notice and the failure of an Offeree to reply in such manner (unless otherwise agreed by the Offerer and the Offeree) shall be deemed as a waiver of its right of pre-emption in respect of the Offered Shares so offered.
3.9Without prejudice to Clause 3.6(a), each Offeree may indicate in the Offer Notice its willingness to purchase Shares in excess of its entitlement if any other Offeree declines the Offeror’s offer and such unaccepted Shares (the “Unaccepted Shares”) shall automatically be entitled to be purchased by the Offeree who has indicated its willingness in the Offer Notice accordingly. If more than one Offeree have indicated such willingness, then all such Unaccepted Shares shall be allocated amongst such Offeree pro-rata according to their respective Applicable Percentages (and for purpose of this Clause 3.9, “Applicable Percentage” shall mean the percentage determined by dividing (i) the number of the Shares held by that Shareholder as at the date of the Offer Notice by (ii) the aggregate number of Shares then held by all Shareholders other than the Offeror and the declining Offeree).
3.10Subject to Clause 3.12, if any or all of the Offered Shares comprised in the Offer Notice are not accepted by the Offeree within [30] days from the date of the Offer Notice pursuant to Clauses 3.8 and 3.9, the Offeror may within [two] months of the Offer Notice transfer the Unaccepted Shares to any third party at such price and terms as set out in the Offer Notice.
3.11If the Unaccepted Shares has not been sold to any third party pursuant to Clause 3.10, the transfer restrictions provided in this Clause shall become effective again and no disposal may be made by the Offeror without again comply with the offering procedures set out herein.
3.12If the Offeror under Clause 3.10 is aFounder (the “Tag-Along Seller”), such Founder shall first give to all other Shareholders a notice (the “Tag-Along Notice”) stating its intention to sell the Unaccepted Shares (the “Sale Shares”).
3.13The Tag-Along Notice shall contain the following:
(a)the number of Sale Shares to be sold;
(b)the identity of the potential purchaser (the “Tag-Along Purchaser”)
(c)the aggregate number of the Sale Shares which the Tag-Along Purchaser will hold following the completion of such proposed sale of the Sale Shares (the “Aggregate Tag-Along Shareholding”); and
(d)the proposed purchase price per Sale Share.
3.14The other Shareholder [or Investor] will have an option to sell to the Tag-Along Purchaser up to the number of Shares as it constitutes its Tag-Along Pro Rata Portion (as defined below) of the Aggregate Tag-Along Shareholding at the purchase price per Share, and the number of Shares which the Tag-Along Seller proposes to sell shall be reduced to the extent of the participation of the other Shareholder pursuant to this Clause.
3.15For the purpose of Clause 3.14, “Tag-Along Pro Rata Portion” shall mean the percentage determined by dividing (i) the number of Shares held by such Shareholders [or Investors] as at the Tag-Along Notice by (ii) the total number of issued share capital of the Company.
3.16 The other Shareholder [or Investors] shall provide the Tag-Along Seller with written irrevocable notice within [14] days after the Tag-Along Notice is given (the “Tag-Along Notice Period”) and shall simultaneously provided a copy of the notice to the Company. Such notice shall include the number of Shares that the other Shareholder [or Investor] wishes to sell not exceeding its Tag Along Pro Rata Portion. Until the expiry of the Tag-Along Notice Period, the Tag-Along Seller shall not sell any of its Shares to the Tag-Along Purchaser.
3.17 If at the expiry of the Tag-Along Notice Period, the other Shareholder [or Investor] shall not have elected to participate in the sale pursuant to this Clause or elected to sell part only of the Shares comprised in the Tag-Along Pro-Rata Portion, the other Shareholder [or Investor] will be deemed to have waived all of its rights under this Clause with respect to the sale of such Shares in relation to which the other Shareholders has elected not to sell.
3.18 Notwithstanding anything contained in this Clause, there shall be no liability on the part of the Tag-Along Seller to the other Shareholder [or Investor] if the sale of Shares pursuant to this Clause is not consummated for whatever reason other than a default on the part of the Tag-Along Seller.
3.19 In the event that a Shareholder or a group of Shareholders of at least [70]% of the outstanding ordinary shares (the “[70]% Holders”) accept an offer to purchase their Shares from a bona fide third party, the [70]% Holders may send a written notice (the “Drag-Along Notice”) to the other Shareholders (the “Drag-Along Sellers”) specifying:-
(a)the name of the purchaser; and
(b)the consideration payable per Share and a summary of the material terms of such proposed purchase.
3.20Upon receipt of a Drag-Along Notice, each Drag-Along Seller shall be obligated to (i) sell all of its Shares, free of any Encumbrance, in the transaction contemplated by the Drag-Along Notice on the same terms and conditions as the [70]% Holders (including payment of its Drag Along Pro Rata Portion of all costs associated with such transaction), and (ii) otherwise take all necessary action to cause the consummation of such transaction, including voting its Shares in favour of such transaction and not exercising any appraisal rights in connection therewith.
3.21Each of Drag-Along Sellers (a) shall further agree to take all actions (including executing documents) in connection with consummation of the proposed transaction as may reasonably be requested of it by the [70]% Holders, and (b) hereby appoint the [70]% Holders, acting jointly, as its attorney-in-fact to do the same on its behalf.
3.22 For the purpose of Clause 3.20, “Drag Along Pro Rata Portion” shall mean the percentage determined by dividing (i) the number of Shares held by suchDrag Along Seller by (ii) the total number of issued share capital of the Company.
3.23 The parties agree to procure that the Directors shall approve for registration, but shall only approve for registration, any transfer of Shares in relation to which compliance has been made with Clause 3 and the relevant provisions of the Articles.
4. PRE-EMPTION RIGHT
4.1The Company shall not issue and allot any Shares to any person except with the prior written consent of each Shareholder (which shall be granted in its sole discretion) [or affirmative vote of the Simple/Special Majority of all Shareholders ] and the unanimous [or Simple/Special Majority] approval of the Board.
4.2 Upon receipt of such consent to the issuing of new Shares from each Shareholder, the Company shall give each Shareholder 30 days’ prior written notice of the terms and conditions of such proposed new issue of Shares and by written notice (each, a “Subscriber Notice”) to the Company within 15 days of receipt, a Shareholder shall be entitled to subscribe for new Shares (the “New Shares”), the number of which shall be determined with reference to its Applicable Percentage of such Shares at the proposed issue price. The failure of a Shareholder to deliver a Subscriber Notice within the 15 days notice period shall constitute a waiver of its right to subscribe for the New Shares. Each Shareholder may also indicate in its Subscriber Notice, if it so elects, its desire to subscribe for such New Shares in excess of its Applicable Percentage. If one or more Shareholders decline to subscribe for their Applicable Percentage of the New Shares, then the unaccepted participation of such Shares (“Excess New Shares”) shall automatically be accepted by the Shareholder who indicated in their Subscriber Notices a willingness to subscribe for Excess New Shares. If more than one Shareholder elects to subscribe for such Excess New Shares, then all such Excess New Shares shall be allocated among such Shareholders pro rata according to their Applicable Percentages. Unless the Shareholders elect to subscribe for all of the New Shares, the Company may issue all, but not less than all, of the remaining New Shares at the price specified by the Company in its notice to the Shareholders, provided that such issue is made to one or more bona fide third party purchasers and made within 120 days after the date such notice was given.