1
EXHIBIT 4.2
SECOND AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this
"AGREEMENT") made and entered into as of the date last below written, by and
among ODYSSEY HEALTHCARE, INC. a Delaware corporation (the "COMPANY"), those
persons whose names are set forth on Schedule I hereto (hereinafter sometimes
referred to collectively as the "FOUNDERS" and singularly as a "FOUNDER"), those
persons whose names are set forth on Schedule II hereto (hereinafter sometimes
referred to collectively as the "INVESTORS" and singularly as an "Investor") and
those persons whose names are set forth on Schedule III hereto and who agree in
writing pursuant to Section 28 of this Agreement to become parties hereto
(herein sometimes referred to collectively as "HOLDERS" and singularly as a
"HOLDER") (the Investors, the Founders and the Holders being sometimes referred
to herein collectively as the "PARTIES" and singularly as a "PARTY"). This
Agreement amends, restates and supersedes the Amended and Restated Stockholders'
Agreement dated as of February 12, 1997 by and among the Company, the Founders
and certain of the Investors.
WHEREAS, the Founders are the holders of an aggregate of 3,643,000
shares of common stock, $0.001 par value, of the Company (the "COMMON STOCK");
WHEREAS, the Company has previously issued and sold to certain of the
Investors (i) 7,091,091 shares (the "SERIES A PREFERRED SHARES") of Series A
Convertible Preferred Stock, $.001 par value per share, of the Company (the
"SERIES A CONVERTIBLE PREFERRED STOCK") pursuant to that certain Series A
Convertible Preferred Stock Purchase Agreement dated as of January 26, 1996 (the
"SERIES A PURCHASE AGREEMENT") by and among the Company and certain of the
Investors and (ii) 6,400,000 shares (the "SERIES B PREFERRED SHARES") of Series
B Convertible Preferred Stock, $.001 par value per share, of the Company (the
"SERIES B CONVERTIBLE PREFERRED STOCK") pursuant to that certain Series B
Convertible Preferred Stock Purchase Agreement dated as of February 12, 1997
(the "SERIES B PURCHASE AGREEMENT") by and among the Company and certain of the
Investors;
WHEREAS, the Company has previously issued and sold to certain of the
Investors (i) its convertible promissory notes in the aggregate principal amount
of $1,500,000 and (ii) warrants (the "PREFERRED WARRANTS") for the purchase
(subject to adjustment as provided therein) of an aggregate of 119,993 shares
(the "PREFERRED WARRANT SHARES") of Series B Preferred Stock, in each case
pursuant to that certain Promissory Note and Warrant Purchase Agreement dated as
of May 22, 1998 (the "BRIDGE NOTE PURCHASE AGREEMENT") by and among the Company,
the Founders and certain of the Investors;
WHEREAS, certain of the Investors propose to purchase an aggregate of
2,857,137 shares (the "SERIES C PREFERRED SHARES" and together with the Series A
Preferred Shares, the Series B Preferred Shares and the Preferred Warrant
Shares, the "PREFERRED SHARES") of Series C Convertible Preferred Stock, $.001
par value per share, of the Company (the "SERIES C CONVERTIBLE PREFERRED STOCK"
and together with the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock, the "PREFERRED STOCK") pursuant to a certain Series
C
2
Convertible Preferred Stock Purchase Agreement dated as of the date hereof
(the "SERIES C PURCHASE AGREEMENT") by and among the Company and certain of the
Investors;
WHEREAS, Capital Resource Lenders III, L.P., a Delaware limited
partnership and CRP Investment Partners III, L.L.C., a Delaware limited
liability company (collectively, the "NOTE PURCHASERS"), propose to purchase (i)
12.0% Senior Subordinated Notes due 2005 (the "NOTES") in the aggregate
principal amount of $12,000,000 from the Company and certain of its subsidiaries
and (ii) Common Stock Purchase Warrants (the "NOTE WARRANTS") for the purchase
(subject to adjustment as provided therein) of an aggregate of 1,943,520 shares
(the "NOTE WARRANT SHARES") of Common Stock, $.001 par value per share, of the
Company, in each case pursuant to that certain Senior Subordinated Note and
Warrant Purchase Agreement dated as of the date hereof (the "NOTE PURCHASE
AGREEMENT") among the Company and the Note Purchasers; and
WHEREAS, it is a condition to the obligations of the Investors under
the Series C Agreement and the obligations of the Note Purchasers under the Note
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Parties hereby agree with each other
as follows:
1. PROHIBITED TRANSFERS. None of the Parties shall sell, assign,
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or
in any way encumber, all or any part of the Shares (as hereinafter defined)
owned by him or it except in compliance with the terms of this Agreement and, in
the case of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), a
Stock Repurchase Agreement by and between the Company and each of ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇, dated January 26, 1996. For purposes of this Agreement, the term
"SHARES" shall mean and include all shares of capital stock of the Company
(including any options, warrants or other securities exercisable or convertible
into any shares of capital stock of the Company), whether now owned or hereafter
acquired and whether or not owned by a Party.
2. RIGHT OF FIRST REFUSAL. The Company shall, prior to any issuance by
the Company of any of its securities (other than debt securities with no equity
feature), offer to each Party by written notice the right for a period of
fifteen (15) days, to purchase for cash at an amount equal to the price or other
consideration and on the material terms for which such securities are to be
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of all such securities that are
so convertible, exercisable or exchangeable), such Party will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice (treating each Party, for the purpose of such computation, as the
holder of the number of shares of Common Stock which would be issuable to such
Party on the date such offer is made, upon conversion, exercise or exchange of
other securities of the Company held by such Party into or for (whether directly
or indirectly) shares of Common Stock and assuming the like conversion, exercise
and exchange of all such other securities held by other persons); provided,
however, that the first refusal rights of the Parties pursuant to this Section 2
shall not apply to securities issued (A) upon conversion of any of the Preferred
Shares, (B) upon exercise of the
2
3
Note Warrants, (C) upon exercise of the Preferred Warrants and upon conversion
of the Preferred Warrant Shares, (D) as a stock dividend or upon any subdivision
of shares of Common Stock, provided that the securities issued pursuant to such
stock dividend or subdivision are limited to additional shares of Common Stock,
(E) pursuant to subscriptions, warrants, options, convertible securities, or
other rights which are listed in Schedule II, Section 2.04 to the Series C
Agreement as being outstanding on the Closing Date (as that term is defined in
the Series C Agreement), (F) solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity, (G)
pursuant to a firm commitment public offering, (H) pursuant to the exercise of
options to purchase Common Stock granted to directors, officers, employees or
consultants of the Company pursuant to a plan approved by a majority of the
members of the Board of Directors, not to exceed in the aggregate 2,278,000
shares (in each case appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Common Stock)
less the number of shares (as so adjusted) issued pursuant to options
outstanding on the Closing Date and listed on Schedule II, Section 2.04 to the
Series C Agreement pursuant to clause (E) above (the shares exempted by this
clause (H) being hereinafter referred to as the "RESERVED EMPLOYEE SHARES"), (I)
options, warrants, convertible securities or other rights to purchase Common
Stock issued with the approval of a majority of the Board of Directors and the
approval of the Company's Chief Executive Officer in transactions with
directors, officers, employees, vendors, suppliers, customers, lessors, or
consultants, the primary purpose of which is not to raise additional equity
capital for the Company, and (J) upon the exercise of any right which was not
itself in violation of the terms of this Section 2. The amount of securities to
be issued by the Company that each Party is entitled to purchase under this
Section 2 shall be referred to as that Party's "PRO RATA PORTION." The Company's
written notice to the Parties shall describe the securities proposed to be
issued by the Company and specify the number, price and payment terms. The
Parties shall have a right of oversubscription such that if any Party fails to
accept the offer as to its Pro Rata Portion, the other Parties shall, among
them, have the right to purchase up to the balance of the offered securities not
so purchased. Such right of oversubscription may be exercised by a Party by
accepting the offer as to more than its Pro Rata Portion. If, as a result
thereof, such oversubscriptions exceed the total number of offered securities
available in respect of such oversubscription privilege, the oversubscribing
Parties shall be cut back with respect to their oversubscriptions on a pro rata
basis in accordance with their respective Pro Rata Portions or as they may
otherwise agree among themselves. Each Party may accept the Company's offer as
to the full number of securities offered to all the Parties or any lesser
number, by written notice thereof given by it to the Company prior to the
expiration of the aforesaid fifteen (15) day period, in which event the Company
shall sell within thirty (30) days and such Party shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Party. The
Company shall be free at any time prior to ninety (90) days after the date of
its notice of the offer to the Parties, to offer and sell to any third party or
parties the number of such securities not agreed by the Parties to be purchased
by them, at a price and on payment terms no less favorable to the Company than
those specified in such notice of offer to the Parties. However, if such third
party sale or sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this Section 2.
3
4
3. RIGHT OF FIRST OFFER ON DISPOSITIONS.
(a) If at any time any Party desires to sell all or any part
of his or its Shares, such Party (the "OFFEROR") shall promptly deliver to the
Company and each other Party a written notice (the "NOTICE") of such Offeror's
intention to sell and such Notice shall contain a written offer (the "OFFER") to
sell such Shares (the "OFFERED SHARES") to the Company. The Offer shall disclose
the Offered Shares proposed to be sold, the total number of Shares owned by the
Offeror, the terms and conditions, including price, of the proposed sale, and
any other material facts relating to the proposed sale. The Offer shall further
state that the Company may acquire, in accordance with the provisions of this
Agreement, all of the Offered Shares for the price and upon the other terms and
conditions, including deferred payment (if applicable), set forth therein.
(b) The Company shall have the absolute right to purchase all
but not less than all of the Offered Shares. If the Company elects to exercise
its right of purchase, the Company shall give notice of such exercise to the
Offeror no later than fifteen (15) days after receipt of the Offer.
(c) Sales of the Offered Shares to be sold to the Company
pursuant to this Section 3 shall be made at the offices of the Company unless
otherwise arranged by the respective parties, on the 45th day following the date
the Offer is made (or if such 45th day is not a business day, then on the next
succeeding business day) (the "PURCHASE DATE"). Such sales shall be effected by
the Offeror's delivery to the Company of a certificate or certificates
evidencing the Offered Shares to be purchased by the Company, duly endorsed for
transfer to the Company, against payment to the Offeror of the purchase price
therefor.
(d) If, for any reason whatever, the Company shall not
exercise its right to purchase the Offered Shares pursuant to this Section 3,
then the Company shall provide written notice (the "PARTICIPATION NOTICE") of
its intent not to purchase the Offered Shares to all Parties no later than
fifteen (15) days after its receipt of the Offer and each such Party (other than
the Offeror) (individually, an "OFFEREE PARTY" and collectively, the "OFFEREE
PARTIES") shall have the right to purchase, on the same terms and conditions set
forth in the Offer, that portion of the Offered Shares to be determined in the
manner set forth herein. Each such Offeree Party shall have the right to
purchase that number of Offered Shares as shall be equal to the aggregate
Offered Shares multiplied by a fraction, the numerator of which is the number of
shares of Common Stock then held by, and which would be issuable to, such
Offeree Party, upon conversion, exercise or exchange of all other securities of
the Company then held by such Offeree Party into or for (whether directly or
indirectly) shares of Common Stock and the denominator of which is the aggregate
number of shares of Common Stock then issued and outstanding and held by all
Offeree Parties, including all shares of Common Stock which would be issuable to
such Offeree Parties, upon conversion, exercise or exchange of all other
securities of the Company then held by such Offeree Parties into or for (whether
directly or indirectly) shares of Common Stock. The amount of Offered Shares
each Offeree Party is entitled to purchase under this paragraph (d) shall be
referred to as such Offeree Party's "PRO RATA FRACTION." Each Offeree Party may
elect to purchase all but not less all of its Pro Rata Fraction of the Offered
Shares. Each Offeree Party shall exercise its right to purchase its Pro Rata
Fraction of the Offered Shares under this paragraph (d) as soon as practicable
after receipt from the Company of the Participation Notice, and in all events
within ten (10) days after receipt thereof. In the event that an Offeree Party
shall elect to purchase its Pro Rata Fraction of the Offered Shares, such
Offeree Party shall individually communicate in writing (the "ELECTION NOTICE")
such election to purchase to the Offeror and the closing of the purchase of such
Offered
4
5
Shares by the Offeree Parties shall take place at the same time and in the same
manner contemplated by paragraph (c) of this Section 3.
(e) Each Offeree Party that has elected to purchase any
Offered Shares pursuant to paragraph (d) of this Section 3 (each such Offeree
Party, for purposes of this paragraph (e), an "ELECTING PARTY") shall have a
right of oversubscription. If any Offeree Party fails to exercise its right to
purchase its Pro Rata Fraction of the Offered Shares under paragraph (d) of this
Section 3, the Offeror shall, within five (5) days after receipt of all Election
Notices, deliver to the Company and to each Electing Party a written notice (the
"OVERSUBSCRIPTION NOTICE") as to the amount (the "OVERSUBSCRIPTION OFFERED
SHARES") of the Offered Shares with respect to which each such nonpurchasing
Offeree Party has failed to exercise its right under paragraph (d) of this
Section 3. Each Electing Party shall have the right to purchase that number of
Oversubscription Offered Shares as shall be equal to the aggregate
Oversubscription Offered Shares multiplied by a fraction, the numerator of which
is the number of shares of Common Stock then held by, and which would be
issuable to, such Electing Party, upon conversion, exercise or exchange of all
other securities of the Company then held by such Electing Party into or for
(whether directly or indirectly) shares of Common Stock and the denominator of
which is the aggregate number of shares of Common Stock then issued and
outstanding and held by all Electing Parties, including all shares of Common
Stock which would be issuable to such Electing Parties, upon conversion,
exercise or exchange of all other securities of the Company then held by such
Electing Parties into or for (whether directly or indirectly) shares of Common
Stock. The amount of Oversubscription Offered Shares each Electing Party is
entitled to purchase under this paragraph (e) shall be referred to as such
Electing Party's "Pro Rata Oversubscription Fraction." Each such Electing Party
that may purchase such Oversubscription Offered Shares in accordance with this
paragraph (e) may elect to purchase all but not less than all of its Pro Rata
Oversubscription Fraction of the Oversubscription Offered Shares. Each Electing
Party shall exercise its right to purchase its Pro Rata Oversubscription
Fraction of the Oversubscription Offered Shares as soon as practicable after
receipt from the Offeror of the Oversubscription Notice, and in all events
within five (5) day after receipt thereof. In the event that an Electing Party
shall elect to purchase its Pro Rata Oversubscription Fraction of the
Oversubscription Offered Shares, such Electing Party shall individually
communicate in writing such election to purchase to the Offeror and the closing
of the purchase of such Oversubscription Offered Shares by the Electing Parties
shall take place at the same time and in the same manner contemplated by
paragraph (c) of this Section 3.
(f) In the event that the Company or the Offeree Parties do
not purchase all of the Offered Shares by the Purchase Date, the Offered Shares
may be sold by the Offeror at any time within 180 days after the date the Offer
is made, subject to the provisions of paragraph (g) of this Section 3 and
Section 5. Any such sale shall be to any one or more of the Proposed Offerees
(as defined below), at not less than ninety percent (90%) of the price and upon
other terms and conditions, if any, not more favorable to the Proposed Offerees
than those specified in the Offer. Any such Offered Shares not sold within such
180-day period shall continue to be subject to the provisions of this Section 3.
(g) The Offeror must give written notice (the "PROPOSED
OFFEREE NOTICE") to the Company and each of the Offeree Parties of the
identities of the proposed purchaser(s) ("PROPOSED OFFEREE(s)") of the Offered
Shares. The Company may withhold its consent to the sale of the Offered Shares
to the Proposed Offeree(s) within five (5) business days after receipt
5
6
of Offeror's notice respecting such Proposed Offerees, provided that the Board
of Directors of the Company, in good faith, articulates reasons why the proposed
sale of any or all of the Offered Shares to the Proposed Offeree(s) would
materially adversely affect the Company. Any such withholding of consent shall
be based upon written documentation, which documentation shall be furnished to
the Offeror concurrently with the Company's notice of withholding consent. If
the Company does not withhold its consent to the sale of the Offered Shares to
the Proposed Offeree(s) within said five (5) business days, the Offeror may sell
the Offered Shares to the Proposed Offerees pursuant to the terms and conditions
of paragraph (f) of this Section 3.
4. LIMITED WAIVER OF PRE-EMPTIVE RIGHTS. Each of the Founders and the
Investors waives any rights of first refusal or other pre-emptive rights, and
waives any notice which may be required in connection with such rights, arising
out of this Agreement or out of any other source which such Founder and/or
Investor may have to purchase any equity securities arising out of or in
connection with the issuance by the Company of (i) the 2,857,143 shares of
Series C Convertible Preferred Stock pursuant to the Series C Agreement and (ii)
the Notes and the Note Warrants pursuant to the Note Purchase Agreement. Said
waiver is limited to the original issuance of the aforementioned shares.
5. PERMITTED TRANSFERS. Anything herein to the contrary
notwithstanding, the provisions of Sections 1 and 3 shall not apply to: (i) any
transfer of Shares by a Party by gift or bequest or through inheritance to, or
for the benefit of, any member or members of such Party's immediate family; (ii)
any transfer of Shares by a Party to a trust in respect of which such Party
serves as trustee, provided that the trust instrument governing said trust shall
provide that such Party, as trustee, shall retain sole and exclusive control
over the voting and disposition of said Shares until the termination of this
Agreement; (iii) any sale or transfer of Shares to the Company (including the
repurchase by the Company of the Note Warrants or Note Warrant Shares pursuant
to Section 3.03 of the Note Purchase Agreement); (iv) any sale of Shares
pursuant to the Company's initial underwritten public offering; and (v) any sale
or transfer of Shares by a Party to an affiliate, partner or shareholder of such
Party. In the event of any such transfer, other than pursuant to clauses (iii)
or (iv) of this Section 5, or a transfer pursuant to clause (v) of this Section
5 where such affiliate, partner, or shareholder acquires less than twenty-five
percent (25%) of such Party's total number of Shares, the transferee of the
Shares shall hold the Shares so acquired with all the rights conferred by, and
subject to all the restrictions imposed by, this Agreement and shall be deemed a
Party for all purposes hereof.
6. ELECTION OF DIRECTORS. Each Party agrees to vote all of his or its
Shares at all elections of directors of the Company so that the Board of
Directors of the Company shall consist of nine (9) members. Pursuant to the
foregoing, each Party agrees to vote his or its Shares to cause and maintain the
election to the Board of Directors of the Company of three (3) persons
designated by the Founders and four (4) persons designated by the Investors. On
the date hereof, the three (3) persons initially designated by the Founders
shall be ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and the four (4)
persons initially designated by the Investors shall be ▇▇▇▇ ▇. Wan, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. Thereafter, each of (i)
Three Arch Partners, L.P. and Three Arch Associates, L.P.; (ii) ▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇ Venture Associates III, L.P. and WPG Enterprise Found II, L.P.; (iii)
Highland Capital Partners III Limited Partnership and Highland Entrepreneurs'
Fund III Limited Partnership; and (iv) Capital Resource Lenders III, L.P. and
CRP Investment Partners III, L.L.C. shall designate one (1) of the persons to
serve as the members of the Board of Directors
6
7
designated by the Investors. The Founders and the Investors shall agree upon a
person knowledgeable in the Company's industry to nominate as the eighth
director and they shall vote their shares to elect said person as a director. So
long as ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ is the President of the Company, he shall be one of
the three persons designated by the Founders to sit on the Board of Directors.
Each Party further agrees to vote his or its shares to remove any director whose
removal is requested by the Parties who designated the election of such
director. Upon such removal a replacement director shall be designated by the
Party or Parties requesting the removal of the removed director. Any action
required to be taken by the Founders under this Section 6 shall be by vote of
the Founders holding at least two-thirds of the shares then held by all
Founders. Any action required to be taken by the Investors under this Section 6
shall be by vote of the Investors holding at least two-thirds of the Preferred
Shares then held by all Investors, and for the purpose of such computation, the
number of shares deemed to be held by each holder of the Preferred Shares shall
be calculated by determining the number of shares of Common Stock the Preferred
Shares would be converted into, assuming conversion of such Preferred Shares as
of the date such action is to be taken.
7. FINANCIAL STATEMENTS, REPORTS, ETC. The Company shall furnish to
each Investor:
(a) as soon as available and in any event within thirty (30)
days after the end of each month, consolidated and consolidating balance sheets
of the Company and its subsidiaries as of the end of such month and consolidated
and consolidating statements of income and of cash flows of the Company and its
subsidiaries for such month and for the periods commencing at the end of the
previous fiscal year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year (except that the Company will not be
required to commence providing such comparative financial data for the
corresponding period of the preceding fiscal year until January 31, 1999) and
the Budget (as defined herein) for the current year, all in reasonable detail,
in a format reasonably satisfactory to the Investors, and duly certified
(subject to normal year-end adjustments) by the chief financial officer or
principal accounting officer of the Company as having been prepared in
accordance with generally accepted accounting principals recognized as such by
the American Institute of Certified Public Accountants (except for the absence
of footnotes) and including a discussion by the Company's management of any
material variance from the Budget for such fiscal year;
(b) as soon as available and in any event within one hundred
five (105) days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year for the Company and its subsidiaries,
including therein consolidated and consolidating balance sheets of the Company
and its subsidiaries (or its operating divisions) as of the end of such fiscal
year and consolidated and consolidating statements of income and retained
earnings and of cash flows of the Company and its subsidiaries for such fiscal
year, setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, all duly certified by independent public
accountants of recognized national standing acceptable to the Investors;
(c) prior to the end of each fiscal year of the Company, (x)
an operating budget (the "BUDGET") of the Company and its subsidiaries for the
next fiscal year in the form customarily prepared by management for internal
use, which Budget shall be reasonably
7
8
satisfactory in form to the Investors but which shall in any case include a
detailed consolidated balance sheet and detailed consolidated monthly statements
of income and cash flows;
(d) at the time of delivery of each monthly and annual
statement, a certificate, executed by the chief financial officer or principal
accounting officer of the Company, stating that such officer has caused this
Agreement, the Note Purchase Agreement, the Notes, the terms of the Preferred
Shares, the Warrants and the Preferred Warrants to be reviewed and has no
knowledge of any default by the Company or any of its subsidiaries in the
performance or observance of any of the provisions of this Agreement, the Note
Purchase Agreement, the Notes, the terms of the Preferred Shares, the Warrants
or the Preferred Warrants or, if such officer has such knowledge, specifying
such default and the nature thereof;
(e) promptly upon receipt thereof, any written report
submitted to the Company or any of its subsidiaries by independent public
accountants in connection with an annual or interim audit of the books of the
Company and its subsidiaries made by such accountants;
(f) promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign that
could materially adversely affect the Company or any of its subsidiaries;
(g) promptly after sending, making available, or filing the
same, such reports and financial statements as the Company or any of its
subsidiaries shall send or make available to the stockholders of the Company or
the Securities and Exchange Commission; and
(h) such other information respecting the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company or any of its subsidiaries as the Investors may from time to time
reasonably request, and to make available to the Investors and their
representatives, members of management and employees with significant
responsibilities (such as department heads) for the purposes of updating the
Investors as to the condition of the Company and its subsidiaries.
Notwithstanding the foregoing, the Company shall be obligated to
provide the financial statements, reports, etc. described in this Section 7 to a
transferee of an Investor only if (i) there is transferred to such transferee at
least 100% of the total number of Preferred Shares originally issued pursuant to
the Series C Agreement, the Series B Agreement and the Series A Agreement to the
direct or indirect transferor of such transferee, (ii) there is transferred at
least 100% of the Note Warrants or Preferred Warrants originally issued pursuant
to the Note Purchase Agreement and Bridge Note Purchase Agreement, as the case
may be, to the direct or indirect transferor or such transferee or (iii) such
transferee is a partner, shareholder, or affiliate of a Party hereto; provided
however, that in the event the number of transferees becomes excessive, as
reasonably determined by the Company, the Company may request that the
transferees appoint a single representative to act on their behalf and to
receive all notices which any or all of them are entitled to receive pursuant to
this Agreement.
8. PROPERTIES, BUSINESS, INSURANCE. The Company shall, within thirty
(30) days after the Closing (as such term is defined in the Series C Purchase
Agreement), maintain and
8
9
cause each of its subsidiaries to maintain as to their respective properties and
business, with financial sound and reputable insurers, insurance against such
causalities and contingencies and of such types and in such amounts as is
customary for companies similarly situated, which insurance shall be deemed by
the Company to be sufficient. The Company shall, within ninety (90) days after
the Closing, also maintain in effect "key person" life insurance policies,
payable to the Company, on the lives of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (so long as they remain employees of the Company), each in the
face amount of at least $1,000,000, $1,000,000 and $500,000, respectively. The
Company shall not cause or permit any assignment or change in beneficiary and
shall not borrow against any such policy. If requested by Investors holding at
least two-thirds of the outstanding Preferred Shares and Preferred Warrant
Shares assuming exercise of the Preferred Warrants) (for the purpose of such
computation, the number of shares deemed to be held by each holder of Preferred
Shares shall be calculated by determining the number of shares of Common Stock
the Preferred Shares would be converted into, assuming conversion of such
Preferred Shares as of the date of such request), the Company will add one
designee of such Investors as a notice party for each such policy and shall
request that the issuer of each policy provide such designee with ten (10) days'
notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned or before any change is made in the beneficiary thereof.
9. INSPECTION. CONSULTATION, AND ADVICE. The Company shall permit and
cause each of its subsidiaries to permit each Investor and such persons as it
may designate, at such Investor's expense, to visit and inspect any of the
properties of the Company and its subsidiaries, examine their books, discuss the
affairs, finances, and accounts of the Company and its subsidiaries with their
officers, employees, and public accountants (and the Company hereby authorizes
said accountants to discuss with such Investor and such designees such affairs,
finances, and accounts), and consult with and advise the management of the
Company and its subsidiaries as to their affairs, finances, and accounts, all at
reasonable times and upon reasonable notice; provided, however, that inspection
and other rights conferred herein on the Investor shall inure to the benefit of
a transferee of Preferred Shares, Note Warrants, Preferred Warrants, as the case
may be, only if (i) there is transferred to such transferee at least 100% of the
total number of Preferred Shares issued pursuant to the Series C Agreement, the
Series B Agreement and the Series A Agreement to the direct or indirect
transferor of such transferee, (ii) there is transferred to such transferee at
least 100% of the Note Warrants or Preferred Warrants, as the case may be,
issued pursuant to the Note Purchase Agreement or the Bridge Note Agreement to
the direct or indirect transferor of such transferee or (iii) such transferee is
a partner, shareholder or affiliate of a Party hereto; and, further provided,
however, that in the event the number of transferees becomes excessive, as
reasonably determined by the Company, the Company may request that the
transferees appoint a single representative to act on their behalf and to
receive all notices which any or all of them are entitled to receive pursuant to
this Agreement.
10. RESTRICTIVE AGREEMENTS PROHIBITED. Neither the Company nor any of
its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of the Series C Agreement, the Note Purchase
Agreement, the Bridge Note Purchase Agreement, the Second Amended and Restated
Registration Rights Agreement of even date herewith between the Company and the
Parties hereto, this Agreement, or the Company's Third Amended and Restated
Certificate of Incorporation (the "CHARTER"), as all such may be amended from
time to time in accordance with their terms and applicable law.
9
10
11. TRANSACTIONS WITH AFFILIATES. Except for transactions contemplated
by this Agreement or as otherwise approved by the Board of Directors, neither
the Company nor any of its subsidiaries shall enter into any transaction with
any director, officer, employee or holder of more than five percent (5%) of the
outstanding capital stock of any class or series of capital stock of the Company
or any of its subsidiaries, member of the family of any such person, or any
corporation, partnership, trust, or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner, or holder of more than five percent (5%) of the outstanding capital
stock thereof, except for transactions on customary terms related to such
person's employment.
12. BOARD OF DIRECTORS MEETINGS. The Company shall use its best efforts
to ensure that meetings of its Board of Directors are held at least four times
each year and at least once each quarter.
13. COMPENSATION. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity, and in similar businesses and
shall not, in any event, exceed the compensation levels established by the
Compensation Committee of the Board of Directors without the approval of a
majority of the members of such Compensation Committee.
14. AMENDED AND RESTATED BY-LAWS. The Company shall at all times cause
its Amended and Restated By-laws to provide that, (a) unless otherwise required
by the laws of the State of Delaware, (i) the Chairman of the Board of
Directors, (ii) the President of the Company, (iii) a majority of the directors,
or (iv) the holders of not more than a majority of the issued and outstanding
shares of the Company entitled to vote for the election of directors shall have
the right to call a meeting of the stockholders, (b) (i) the Chairman of the
Board of Directors, (ii) the President of the Company, or (iii) one-third of the
directors (rounded up to the nearest whole number) shall have the right to call
a meeting of the Board of Directors, and (c) the number of directors fixed in
accordance therewith shall in no event conflict with any of the terms or
provisions of the Charter. The Company shall at all times maintain provisions in
its By-laws and/or Charter indemnifying all directors against liability and
absolving all directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the State of Delaware.
15. PERFORMANCE OF CONTRACTS. The Company shall not amend, modify,
terminate, waive, or otherwise alter, in whole or in part, any of the employee
nondisclosure agreements with any of the Company's employees or the employment
agreements with the Company's executive employees without the approval of a
majority of the Company's Board of Directors.
16. VESTING OF RESERVED EMPLOYEE SHARES. Except as set forth on
schedules to the Series C Agreement, the Company shall not grant to any of its
employees options to purchase shares of Common Stock pursuant to a stock option
plan which will become exercisable at a rate in excess of twenty percent (20%)
per annum from the date of such grant with the first vesting occurring after the
first year of employment (except in the case of merger, consolidation, sale of
all (or substantially all) of the assets of the Company, or other business
combination involving the sale or transfer of all (or substantially all) of the
capital stock of the Company in which the Company is not the surviving entity,
or, if it is the surviving entity, either (i) does not survive as
10
11
an operating ongoing concern in substantially the same line of business, or (ii)
is controlled by persons or entities previously unaffiliated with the Company,
in which case such shares may vest immediately), without the approval of a
majority of the Company's Board of Directors. The Company shall reserve a right
of first refusal to purchase any shares of Common Stock issued to an optionee
under a stock option plan if such person wishes to transfer any of such shares
at any time before the closing of an underwritten public offering under the
Securities Act of 1933, as amended, with respect to the Company's Common Stock.
17. EMPLOYEE NONDISCLOSURE AND DEVELOPMENTS AGREEMENTS. The Company
shall obtain, and shall use its best efforts to cause its subsidiaries to
obtain, appropriate employee nondisclosure agreements or equivalent agreements
from all future officers, key employees and other employees, who will have
access to confidential information of the Company or any of its subsidiaries,
upon their employment by the Company or any of its subsidiaries.
18. PURCHASES, DISTRIBUTIONS AND DIVIDENDS. The Company shall not,
without the consent of the Note Purchasers and the holders of at least
two-thirds of the then outstanding Preferred Shares, purchase or set aside any
sums for the purchase of, or pay any dividend or make any distribution on, any
shares of stock other than the Preferred Shares, except for dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock and except for (i) the purchase by the Company of the
Note Warrants and/or the Note Warrant Shares pursuant to Section 3.03 of the
Note Purchase Agreement and (ii) the purchase of shares of Common Stock or
Preferred Shares from former employees of the Company who acquired such shares
directly from the Company, if each such purchase is made pursuant to contractual
rights held by the Company relating to the termination of employment of such
former employee and the purchase price does not exceed the original issue price
paid by such former employee to the Company for such shares.
19. U.S. REAL PROPERTY INTEREST STATEMENT. Upon a written request by
any Investor, the Company shall provide such Investor with a written statement
informing the Investor whether such Investor's interest in the Company
constitutes a U.S. real property interest. The Company's determination shall
comply with the requirements of Treasury Regulation section 1.897-2(h)(1) or any
successor regulation, and the Company shall provide timely notice to the
Internal Revenue Service, in accordance with and to the extent required by
Treasury Regulation section 1.897-2(h)(2) or any successor regulation, that such
statement has been made. The Company's written statement to any Investor shall
be delivered to such Investor within ten (10) days of such Investor's written
request therefor. The Company's obligation to furnish a written statement
pursuant to this Section 19 shall continue notwithstanding the fact that a class
of the Company's stock may be regularly traded on an established securities
market.
20. TERMINATION. This Agreement, and the respective rights and
obligations of the Parties, shall terminate on the closing of a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale by the
Company of Common Stock approved by the Company's Board of Directors. In
addition, the rights of a Party to purchase securities pursuant to Section 2
shall terminate on the date such Party shall own less than 20% of the shares of
Common Stock owned by such Party on the date hereof (treating such Party, for
the purposes of such computation, as the holder of the number of shares of
Common Stock which would be issuable to such Party, upon the conversion,
exercise or exchange of securities that are convertible,
11
12
exercisable or exchangeable into or for (whether directly or indirectly) shares
of Common Stock and assuming the like conversion, exercise and exchange of all
such securities held by other persons).
21. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered, telecopied or
mailed by first class, registered or certified mail, postage prepaid, to each
Party at its respective address set forth on Schedules I and II hereof, or to
such other address as the addressee shall have furnished to the other Parties
hereto in the manner prescribed by this Section 21.
22. SPECIFIC PERFORMANCE. The rights of the Parties under this
agreement are unique and, accordingly, the Parties shall, in addition to such
other remedies as may be available to any of them at law or in equity, have the
right to enforce their rights hereunder by actions for specific performance to
the extent permitted by law.
23. LEGEND. The certificates representing the Shares subject to this
Agreement shall bear on their face a legend substantially as follows:
"The shares represented by this certificate are subject to all the
terms and conditions of a certain Second Amended and Restated
Stockholders' Agreement dated as of July __, 1998, as may be amended, a
copy of which the Company will furnish to the holder of this
certificate upon request and without charge."
24. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the Parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between them or any of them as to such
subject matter.
25. WAIVERS AND FURTHER AGREEMENTS. Any of the provisions of this
Agreement may be waived with the written consent of (a) Founders owning a
majority of the Shares then owned by all Founders, and for the purpose of such
computation, the number of shares deemed to be held by each holder of Preferred
Shares shall be calculated by determining the number of shares of Common Stock
the Preferred Shares would be converted into, assuming conversion of such
Preferred Shares as of the date such action is to be taken, which waiver shall
bind all of the Founders and (b) Investors owning two-thirds of the Shares then
owned by all Investors, and for the purpose of such computation, the number of
shares deemed to be held by each such Investor shall be calculated by
determining the number of shares of Common Stock which would be issuable to such
Investor upon the conversion, exercise or exchange of securities that are
convertible, exercisable or exchangeable into, or for (whether directly or
indirectly) shares of Common Stock assuming the like conversion, exercise, and
exchange of such securities as of the date such action is to be taken, which
waiver shall bind all of the Investors. The foregoing sentence shall not apply
to Sections 2 and 3. Any waiver by any Party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of that provision or of any other provision hereof. Each of the Parties
hereto agrees to execute all such further instruments and documents and to take
all such further action as any other Party may reasonably require in order to
effectuate the terms and purposes of this Agreement.
26. AMENDMENTS. Except as otherwise expressly provided herein, this
Agreement may not be amended except by an instrument in writing executed by (a)
Founders owning a
12
13
majority of the Shares then owned by all Founders, and for the purpose of such
computation, the number of shares deemed to be held by each holder of Preferred
Shares shall be calculated by determining the number of shares of Common Stock
the Preferred Shares would be converted into, assuming conversion of such
Preferred Shares as of the date such action is to be taken, which amendment
shall bind all of the Founders and (b) Investors owning two-thirds of the Shares
then owned by all Investors, and for the purpose of such computation, the number
of shares deemed to be held by each such Investor shall be calculated by
determining the number of shares of Common Stock which would be issuable to such
Investor upon the conversion, exercise or exchange of securities that are
convertible, exercisable or exchangeable into, or for (whether directly or
indirectly) shares of Common Stock assuming the like conversion, exercise, and
exchange of such securities as of the date such action is to be taken.
27. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Parties hereto and their respective
heirs, executors, legal representatives, successors and permitted transferees,
except as may be expressly provided otherwise herein.
28. ADDITIONAL SHARES OF STOCK. The Company shall not issue any equity
securities or subscriptions, warrants, options, convertible securities or other
rights (contingent or otherwise) to purchase or otherwise acquire equity
securities to any person who is not a Party unless the person to whom such
equity securities or subscriptions, warrants, options, convertible securities or
other rights (contingent or otherwise) to purchase or otherwise acquire equity
securities are issued agrees, in a writing delivered simultaneously with such
issuance, to become bound by the transfer restrictions and rights of first
refusal to the Company similar to those set forth herein.
29. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance is held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
30. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed
in two or more counterparts, and by the parties hereto in separate counterparts
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument. A facsimile
transmission of a signature hereto shall be deemed for all purposes to be an
original signature.
31. SECTION HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
32. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall create
an obligation on the Company or the Parties to continue any person's employment
with the Company.
33. [RESERVED]
34. LIABILITY. None of the Founders or Investors shall be personally
liable to any party for a breach by the Company or its obligations hereunder.
13
14
35. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Texas, without
reference to conflicts of law principles.
36. ADDITIONAL PARTIES. The parties hereto acknowledge that certain
Investors as of the date of this amendment and restatement of the Agreement were
not parties to the original form of this Agreement, and hereby consent to the
making of such persons and entities parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hand as of this
1st day of July, 1998.
COMPANY ODYSSEY HEALTHCARE, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
FOUNDERS: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
14
15
THREE ARCH PARTNERS, L.P.
/s/ ▇▇▇▇ ▇▇▇
----------------------------------
By Three Arch Management, L.P.,
Its General Partner
THREE ARCH ASSOCIATES, L.P.
/s/ ▇▇▇▇ ▇▇▇
----------------------------------
By Three Arch Management, L.P.,
Its General Partner
INVESTORS: THREE ARCH PARTNERS, L.P.
/s/ ▇▇▇▇ ▇▇▇
----------------------------------
By Three Arch Management, L.P.,
Its General Partner
THREE ARCH ASSOCIATES, L.P.
/s/ ▇▇▇▇ ▇▇▇
----------------------------------
By Three Arch Management, L.P.,
Its General Partner
▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ VENTURE
ASSOCIATES III, L.P.
By WPG Venture Partners III, L.P.,
General Partner
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, General Partner
15
16
WPG ENTERPRISE FUND II, L.P.
By WPG Venture Partners III, L.P.,
General Partner
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, General Partner
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By /s/ ▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇ ▇▇▇▇▇▇, Managing Member of Oak
Associates VI, LLC, the General Partner
of Oak Investment Partners VI, Limited
Partnership
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP
By /s/ ▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇ ▇▇▇▇▇▇, Managing Member of Oak
VI Affiliates, LLC, the General Partner
of Oak VI Affiliates Fund, Limited
Partnership
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ VENTURE
PARTNERS, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
16
17
HIGHLAND CAPITAL PARTNERS III
LIMITED PARTNERSHIP
By Highland Management Partners III
Limited Partnership, its General Partner
By /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------------
General Partner
HIGHLAND ENTREPRENEURS' FUND
III LIMITED PARTNERSHIP
By HEF III, LLC, its General Partner
By /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Member
LIFE SCIENCE ENTREPRENEUR FUND
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Administrative
Partner
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
its General Partner
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
17
18
CRP INVESTMENT PARTNERS III,
L.L.C.
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
HOLDERS
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
18
