Stockholders' Agreement - CancerVax Corp., the Morton Family Trust, the Morton Annuity Trust, OncoVac Inc. and the John Wayne Cancer Institute
CANCERVAX CORPORATION
THIRD AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
AUGUST 13, 2003
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THIRD AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
This THIRD AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this
"AGREEMENT") is dated as of the 13th day of August, 2003 (the "EFFECTIVE DATE"),
and is entered into by and among CANCERVAX CORPORATION, a Delaware corporation
(the "COMPANY"), THE DONALD L. MORTON FAMILY TRUST created under trust dated
June 2, 1989 (the "MORTON FAMILY TRUST"), the DONALD L. MORTON, M.D., GRANTOR
RETAINED ANNUITY TRUST dated September 6, 2002 (the "MORTON ANNUITY TRUST" and
collectively, with the Morton Family Trust, the "MORTON TRUST"), ONCOVAC, INC.,
a California corporation ("ONCOVAC" and collectively, with the Morton Trust, the
"MORTON ENTITIES"), the investors listed on Exhibit A hereto (each, an
"INVESTOR" and collectively, the "INVESTORS") and JOHN WAYNE CANCER INSTITUTE, a
California non-profit corporation ("JWCI"), with respect to Sections 4, 6, 7, 8
and 9 only.
This Agreement supercedes and replaces that certain Second Amended and
Restated Stockholders' Agreement, effective as of March 15, 2002, by and among
the Company, certain of the Morton Entities, JWCI and the other parties named
therein the ("PRIOR AGREEMENT").
RECITALS
A. The Morton Trust is the beneficial owner of 20,076,531 shares
of the Company's Junior Preferred Stock ("JUNIOR PREFERRED STOCK") (such number
of shares of Junior Preferred Stock including any shares of the Company's Common
Stock ("COMMON STOCK") issuable upon conversion thereof, being referred to as
the "MORTON JUNIOR SHARES"). The Morton Entities are the beneficial owners of
2,437,993 shares of the Company's Series A Preferred Stock ("SERIES A PREFERRED
STOCK") (such number of shares of Series A Preferred Stock, including any shares
of Common Stock issuable upon conversion thereof, being referred to herein as
the "MORTON A SHARES"). The Morton Junior Shares and the Morton A Shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like with
respect to such shares) are collectively referred to as the "STOCK."
B. The Prior Agreement provides that an amendment or modification
to the Prior Agreement may be effected by a written instrument executed by (i)
the Company, (ii) the Morton Family Trust, and (iii) the Investors holding not
less than sixty percent (60%) of the outstanding Series A Preferred Stock and
the Series B Preferred Stock (or any shares of Common Stock issued or issuable
upon conversion thereof), voting together as a single class.
C. The undersigned Investors constitute holders of not less than
sixty percent (60%) of the outstanding Series A Preferred Stock and Series B
Preferred Stock (or any shares of Common Stock issued or issuable upon the
conversion thereof), voting together as a single class, and, therefore, are
entitled to bind all other holders of Series A Preferred Stock and Series B
Preferred Stock who are parties to the Prior Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties hereby agree as follows:
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1. Restrictions on Transfer. Except as permitted by the terms of
this Agreement, no Morton Entity may make any sale, exchange, transfer,
assignment, gift, pledge, encumbrance, hypothecation or alienation of any shares
of Stock, or any interest in such shares, whether voluntarily or involuntarily
or by operation of law (hereinafter collectively referred to as a "TRANSFER").
Furthermore, except for transfers of the Morton Junior Shares to the spouse,
lineal descendant or antecedent, father, mother, brother, sister, child, adopted
child or grandchild or adopted grandchild of Donald L. Morton, M.D. ("MORTON")
or Morton's spouse or the spouse of any child, adopted child, grandchild or
adopted grandchild of Morton or Morton's spouse, or any trust for the benefit of
Morton or any of the foregoing for the primary purpose of estate or tax
planning, the Morton Trust shall not transfer any Morton Junior Shares which
shall be subject to a prohibition on transfer (the "TRANSFER RESTRICTIONS")
until such Transfer Restrictions terminate as set forth in Section 2 below. Any
Morton Junior Shares subject to Transfer Restrictions are hereinafter sometimes
referred to as "RESTRICTED SHARES."
2. Transfer Restrictions.
(a) Termination of Transfer Restrictions. The Transfer
Restrictions shall terminate with respect to any and all Morton Junior Shares in
accordance with the following provisions:
(i) As of the effectiveness of this Agreement,
the Transfer Restrictions have lapsed with respect to 14,053,569 of the Morton
Junior Shares held by the Morton Trust.
(ii) The Transfer Restrictions shall lapse with
respect to the remaining Restricted Shares in a series of successive equal
monthly installments of 334,609 shares on the fifteenth (15th) day of each of
the eighteen (18) months after the Effective Date.
(iii) The Transfer Restrictions shall lapse with
respect to any remaining Restricted Shares in the event that (A) Morton dies or
suffers a Permanent Disability (as defined below), (B) the Company receives
approval of a biological license application from the U.S. Food and Drug
Administration ("FDA") for the melanoma vaccine currently under development by
the Company, or a human monoclonal antibody product for the treatment of cancer,
or (C) a Change of Control (as defined below) occurs. "PERMANENT DISABILITY"
means the inability of Morton to engage in any substantially gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve months or more.
"CHANGE OF CONTROL" means consummation of either (a) a merger or consolidation
of the Company with or into any other entity or person, or (b) a sale, lease,
exchange, or other transfer in one transaction or series of related transactions
of all or substantially all of the Company's outstanding securities or all or
substantially all of the Company's assets; provided, however, that a Change of
Control shall not include a Related Party Transaction. "RELATED PARTY
TRANSACTION" means (i) a merger or consolidation of the Company in which the
holders of the voting securities of the Company immediately prior to the merger
or consolidation hold at least a majority of the voting securities in the
Successor Entity immediately after the merger or consolidation, (ii) a sale,
lease, exchange, or other transaction in one transaction or a series of related
transactions, of all or substantially all of the Company's assets to a wholly
owned subsidiary entity, (iii) a reincorporation of the Company, or (iv) a
transaction undertaken for the sole purpose of creating a holding company that
will be owned in
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substantially the same proportion by the persons who held the Company's
securities immediately before such transaction. "SUCCESSOR ENTITY" means the
surviving entity, the successor entity, or its parent entity, as applicable.
All Morton Junior Shares as to which the Transfer Restrictions
lapse shall, however, continue to be subject to all the terms of this Agreement
(other than this Section 2), including the right of first refusal contained in
Section 3 and the co-sale rights contained in Section 4.
(b) Additional Stock or Substituted Securities. In the
event of any stock dividend, stock split, recapitalization or other change
affecting the Company's outstanding Common Stock as a class effected without
receipt of consideration, then any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which is by reason of any such transaction distributed with respect to the
Morton Junior Shares shall be immediately subject to the Transfer Restrictions,
but only to the extent the Morton Junior Shares are at the time covered by such
restrictions. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number of Morton Junior Shares at
the time subject to the Transfer Restrictions hereunder in order to reflect the
effect of any such transaction upon the Company's capital structure.
3. Right of First Refusal.
(a) Notice to the Company and the Investors.
(i) In the event any Morton Entity desires to
transfer any Stock (the "MORTON TRANSFEROR") other than as specifically provided
in Sections 2 or 6, the Morton Transferor must deliver a notice in writing by
certified mail ("NOTICE") to the Company stating (A) the Morton Transferor's
bona fide intention to sell or transfer such shares, (B) the number of such
shares to be sold or transferred, (C) the price, if any, for which it proposes
to sell or transfer such shares, and (D) the name of the proposed purchaser or
transferee.
(ii) In the event the proposed transfer is
partially or completely in exchange for assets other than cash, then such assets
shall be deemed to have a cash value in the amount determined by the Board in
its sole good faith opinion, in which case such cash value ascertained by the
Board, when added to any cash to be exchanged and then divided by the number of
shares of Stock to be transferred, shall be deemed the price per share set forth
in the Notice. In the event of a gift, property settlement or other transfer in
which the proposed purchaser or transferee is not paying the full price for the
Stock, which transfer is not otherwise exempted from the terms of Sections 3 and
4 hereof, the price shall be deemed to be the fair market value of the Stock as
determined in good faith by the Board.
(b) Company Right of First Refusal. The Company shall
have an exclusive, irrevocable option (the "COMPANY OPTION"), at any time within
thirty (30) days of receipt of the Notice, to purchase some or all of the Stock
to which the Notice refers at the price per share specified in the Notice (as
determined in Section 3(a)). The Company shall exercise the Company Option by
written notice signed by an officer of the Company and delivered or mailed to
the Morton Transferor (the "COMPANY SETTLEMENT NOTICE"), which notice shall
specify the
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time, place and date for settlement of such purchase. Any exercise of the
Company Option shall require the approval of the Company's Board, including one
director elected solely by the holders of Series A Preferred Stock and one
director elected solely by the holders of Series B Preferred Stock.
(c) Company Settlement. Within ten (10) days of receipt
of the Company Settlement Notice, the Morton Transferor must deliver to the
Company all certificates for the Stock being acquired by the Company which are
not already in the Company's custody, together with proper assignments in blank
of the Stock and with such other documents as may be required by the Company to
provide reasonable assurance that each necessary endorsement is genuine and
effective, and the Company must thereupon deliver to the Morton Transferor full
cash payment for the Stock being acquired, provided that if the terms of payment
set forth in the Notice were other than cash against delivery, the Company shall
pay for said shares in accordance with Section 3(a)(ii).
(d) Investor Right of First Refusal. In the event that
the Company does not exercise the Company Option as to all the shares to be sold
or transferred in accordance with Section 3 hereof, the Company shall not later
than thirty (30) days from the date of receipt of the Notice give written notice
to the Investors of the Company's nonexercise (or partial exercise) of the
Company Option, which notice shall enclose the Notice and the details of the
Company's partial exercises (if any), and shall specify the procedures by which
each Investor may exercise the option to purchase not more than its Pro Rata
Share (as defined in Section 3(f) below) of the remaining shares of Stock (the
"INVESTOR OPTION"). For thirty (30) calendar days following the expiration of
the Company Option, each Investor may exercise its Investor Option at the same
price and upon the same terms as set forth in the Notice. Any Investor desiring
to exercise its Investor Option shall deliver to the Company and to the Morton
Transferor a written notice of election to purchase the shares with respect to
which the Investor Option is to be exercised. The Company shall, within three
(3) days after the end of such thirty (30) day period, inform each Investor
purchasing all the shares available to such Investor (a "FULLY-EXERCISING
INVESTOR") of any other Investor's failure to do likewise. During the ten (10)
day period commencing after receipt of such information, each Fully-Exercising
Investor shall be entitled to give written notice to the Company and the Morton
Transferor of its election (the "INVESTOR OVER-ALLOTMENT OPTION") to purchase
that portion of the shares for which Investors were entitled to subscribe but
which were not subscribed for by the Investors equal to the proportion that the
Pro Rata Share of such Fully-Exercising Investor bears to the Pro Rata Shares of
all of the Fully-Exercising Investors who wish to purchase some of the
unsubscribed shares, or such other proportions as the Fully-Exercising Investors
shall determine.
(e) Investor Settlement. If the Company Option, the
Investor Option and the Investor Over-Allotment Option (collectively, the
"OPTIONS") are exercised for all of the Stock in the Notice, promptly upon
expiration of the Options, the Company shall deliver a notice in writing to the
Morton Transferor and each Investor and/or assignee who elected to acquire a
portion of the Stock subject to the Investor Option (the "INVESTOR SETTLEMENT
NOTICE") setting forth the number of shares of Stock to be sold to each Investor
and/or assignee and the price thereof. Within ten (10) days of receipt of the
Investor Settlement Notice, the Morton Transferor must deliver to the Company
any certificates for the Stock being acquired by the Investors and/or assignees
which are not already in the Company's custody, together with proper assignments
in
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blank of the Stock and with such other documents as may be required by the
Company to provide reasonable assurance that each necessary endorsement is
genuine and effective. Within ten (10) days of receipt of the Investor
Settlement Notice, each Investor and/or assignee acquiring a portion of the
Stock must deliver to the Company (a) full cash payment for the portion of the
subject Stock being so acquired, provided that if the terms of payment set forth
in the Notice were other than cash against delivery, the Investors electing to
acquire a portion of the subject Stock and/or their assignees shall pay for such
shares in accordance with Section 3(a)(ii); and, if applicable, (b) evidence
satisfactory to the Company that such assignee has become a party to this
Agreement. The Company shall thereafter promptly remit full payment for the
Stock acquired hereby to the Morton Transferor and deliver the new or assigned
certificates to the Investors and/or assignees, as appropriate. In the event
that the Options are not exercised for all of the Stock in the Notice, the
Morton Transferor shall have sixty (60) days to (subject to the right of co-sale
in Section 4) transfer all of the Stock as specified in the Notice.
(f) Determination of Pro Rata Share. For purposes of this
Section 3, each Investor's "PRO RATA SHARE" is the ratio of (i) the total number
of shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock held by such Investor as of the date of the Notice
(on an as-converted to Common Stock basis) to (ii) the total aggregate shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock held by all Investors as of such date (on an as-converted to
Common Stock basis).
(g) Recapitalization/Merger. In the event of any stock
dividend, stock split, recapitalization or other transaction affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property which is by reason of such transaction distributed with respect to the
Stock shall be immediately subject to the Company Option and the Investor Option
hereunder, but only to the extent the Stock is at the time covered by such
right.
4. Co-Sale Rights in Sales by a Morton Entity.
(a) Morton Co-Sale Notice. In the event that the Company
and/or the Investors have waived or failed to timely exercise the Options to
purchase all of the Stock proposed to be transferred by a Morton Transferor, the
Company shall deliver, promptly upon expiration of the Options, a notice in
writing to each Investor and JWCI (the "MORTON CO-SALE NOTICE") reiterating the
names of the prospective transferee or transferees, the number of shares of
Stock proposed to be transferred, and the price per share at which such shares
are proposed to be transferred.
(b) Grant of Co-Sale Rights. Each Investor and JWCI shall
have the right, exercisable upon written notice to the Morton Transferor within
fifteen (15) business days after receipt of the Morton Co-Sale Notice, to
participate in the sale of the Stock on the same terms and conditions as those
set forth in the Morton Co-Sale Notice. To the extent one or more of the
Investors or JWCI exercise such right of participation, the number of shares
that the Morton Transferor may sell in the transaction shall be correspondingly
reduced. The right of participation of each of the Investors and JWCI shall be
subject to the terms and conditions set forth in this Section:
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(i) Each Investor and JWCI shall be deemed to
own the number of shares of Common Stock held of record by such Investor or
JWCI, as applicable, plus the number of shares of Common Stock which are
issuable upon conversion of any shares of the Company's Preferred Stock
("PREFERRED STOCK") held by such Investor or JWCI.
(ii) Each Investor and JWCI may sell all or any
part of a number of shares equal to the product obtained by multiplying (A) the
aggregate number of shares of Stock covered by the Morton Co-Sale Notice by (B)
a fraction, the numerator of which is the number of shares of Common Stock and
the number of shares of Common Stock which are issuable upon conversion of
shares of Preferred Stock at the time owned by such Investor, or JWCI, as
appropriate, and the denominator of which is the combined number of shares of
Common Stock and the number of shares of Common Stock which are issuable upon
conversion of shares of Preferred Stock at the time owned by the Morton
Transferor and all of the Investors and JWCI.
(iii) If any Investor or JWCI fails to elect to
fully participate in the Morton Transferor sale pursuant to this Section 4, the
Morton Transferor shall give notice of such failure to each of the Investors and
JWCI who did so elect (the "PARTICIPANTS"). Such notice may be made by telephone
if confirmed in writing within two days. The Participants shall have five days
from the date such notice was given to agree to sell their pro rata share of the
unsold portion. For purposes of this paragraph, a Participant's pro rata share
shall be the ratio of (x) the number of shares of Common Stock and the number of
shares of Common Stock which are issuable upon conversion of shares of Preferred
Stock at the time owned by such Participant to (y) the combined number of shares
of Common Stock and the number of shares of Common Stock which are issuable upon
conversion of shares of Preferred Stock at the time owned by the Morton
Transferor and all of the Participants.
(iv) In the event that the Participants elect to
participate with respect to all or a portion of their respective pro rata share
of the Morton Transferor sale made available to them pursuant to subsection
4(b)(iii) above, each Participant may effect its participation in the sale by
delivering to the Morton Transferor for transfer to the purchase offeror one or
more certificates, properly endorsed for transfer, which represent:
(A) the number of shares of Common
Stock which the party elects to sell pursuant to this Section 4(b); or
(B) that number of shares of the
Company's Preferred Stock which is at such time convertible into the number of
shares of Common Stock which the party has elected to sell pursuant to this
Section 4(b); provided, however, that if the purchase offeror objects to the
delivery of Preferred Stock in lieu of Common Stock, the party may convert and
deliver Common Stock.
(c) Payment of Proceeds. The stock certificates which the
Participants deliver to the Morton Transferor pursuant to Section 4(b) shall be
transferred by the Morton Transferor to the purchase offeror in consummation of
the sale of the Stock pursuant to the terms and conditions specified in the
Morton Co-Sale Notice, and the Morton Transferor shall promptly thereafter remit
to each Investor and JWCI that portion of the sale proceeds to which the
Participant is entitled by reason of its participation in such sale. To the
extent that the purchase
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offeror refuses to purchase shares from a Participant exercising its right of
co-sale hereunder, the Morton Transferor shall not sell to such purchase offeror
unless or until, simultaneous with such sale, the Morton Transferor shall
purchase such shares from such Participant on the same terms and conditions
specified in the Morton Co-Sale Notice.
(d) Non-Exercise. The exercise or non-exercise of the
rights of the Investors and JWCI hereunder to participate in one or more sales
of Stock made by a Morton Entity shall not adversely affect their rights to
participate in subsequent Stock sales by such Morton Entity.
(e) Transfer of Stock Upon Failure to Exercise Right of
Co-Sale. If none of the Investors or JWCI elects to participate in the sale of
any of the Stock subject to the Morton Co-Sale Notice, the Morton Transferor
may, not later than sixty (60) days following the Investors' and JWCI's receipt
of the Morton Co-Sale Notice, conclude a transfer of not less than all of the
Stock covered by the Morton Co-Sale Notice on terms and conditions not more
favorable to the transferor than those described in the Morton Co-Sale Notice.
Any proposed transfer on terms and conditions more favorable than those
described in the Morton Co-Sale Notice, as well as any subsequent proposed
transfer of any Stock by the Morton Transferor, shall again be subject to, and
require compliance with, the provisions of Sections 3 and 4 hereof.
5. Co-Sale Rights in Sales by Investors.
(a) Investor Co-Sale Notice. In the event that an
Investor (a "TRANSFERRING INVESTOR") desires to transfer any shares of Series A
Preferred Stock (or any shares of Common Stock issued or issuable upon the
conversion thereof) (the "INVESTOR SHARES") other than as specifically provided
in Section 6 below, the Transferring Investor shall deliver a notice in writing
to the Morton Entities (the "INVESTOR CO-SALE NOTICE") stating the names of the
prospective transferee or transferees, the number of Investor Shares proposed to
be transferred and the price per share at which such shares are proposed to be
transferred.
(b) Grant of Co-Sale Rights. The Morton Entities shall
have the right, exercisable upon written notice to the Transferring Investor
within fifteen (15) business days after receipt of the Investor Co-Sale Notice
by the Morton Entities, to participate in the sale of the shares on the same
terms and conditions as those set forth in the Investor Co-Sale Notice. The
right of participation of the Morton Entities shall be subject to the terms and
conditions set forth in this Section:
(i) Each Morton Entity shall be deemed to own
the number of shares of Series A Preferred Stock held of record by such Morton
Entity plus the number of shares of Common Stock held by such Morton Entity
which were issued upon conversion of any shares of Series A Preferred Stock (the
"MORTON CO-SALE SHARES").
(ii) Each Morton Entity may sell all or any part
of a number of shares equal to the product obtained by multiplying (A) the
aggregate number of shares covered by the Investor Co-Sale Notice by (B) a
fraction, the numerator of which is the number of Morton Co-Sale Shares at the
time owned by such Morton Entity and the denominator of which is the combined
number of shares of Series A Preferred Stock and the number of shares of Common
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Stock which are issuable upon conversion of shares of Series A Preferred Stock
at the time owned by the Morton Entities and the Transferring Investor.
(iii) If any Morton Entity fails to elect to fully
participate in the Transferring Investor sale pursuant to this Section 5, the
Transferring Investor shall give notice of such failure to any Morton Entity who
did so elect (the "MORTON PARTICIPANTS"). Such notice may be made by telephone
if confirmed in writing within two days. The Morton Participants shall have five
days from the date such notice was given to agree to sell their pro rata share
of the unsold portion. For purposes of this paragraph, a Morton Participant's
pro rata share shall be the ratio of (x) the number of shares of Series A
Preferred Stock and Common Stock (on an as-converted basis) held by such Morton
Participant to (y) the total number of shares of Series A Preferred Stock and
Common Stock (on an as-converted basis) held by the Morton Participants and the
Transferring Investor.
(iv) Each Morton Entity may effect its
participation in the sale by delivering to the Transferring Investor for
transfer to the purchase offeror one or more certificates, properly endorsed for
transfer, which represent the number of shares of Series A Preferred Stock or
Common Stock which such Morton Entity elects to sell pursuant to this Section
5(b).
(c) Payment of Proceeds. The stock certificates which the
Morton Participants deliver to the Transferring Investor pursuant to Section
5(b) shall be transferred by the Transferring Investor to the purchase offeror
in consummation of the sale of the Investor Shares pursuant to the terms and
conditions specified in the Investor Co-Sale Notice, and the Transferring
Investor shall promptly thereafter remit to each Morton Participant that portion
of the sale proceeds to which such Morton Participant is entitled by reason of
its participation in such sale. To the extent that the purchase offeror refuses
to purchase shares from a Morton Participant exercising its right of co-sale
hereunder, the Transferring Investor shall not sell to such purchase offeror
unless or until, simultaneous with such sale, the Transferring Investor shall
purchase such shares from such Morton Participant on the same terms and
conditions specified in the Investor Co-Sale Notice.
(d) Non-Exercise. The exercise or non-exercise of the
rights of the Morton Entities hereunder to participate in one or more sales of
the Investor Shares made by the Investors shall not adversely affect the Morton
Entities' rights to participate in subsequent sales of Investor Shares by the
Investors.
(e) Transfer of Stock Upon Failure to Exercise Right of
Co-Sale. If no Morton Entity elects to participate in the sale of the Investor
Shares subject to the Investor Co-Sale Notice, the Transferring Investor may,
not later than sixty (60) days following the Morton Entities' receipt of the
Investor Co-Sale Notice, conclude a transfer of not less than all of the
Investor Shares covered by the Investor Co-Sale Notice on terms and conditions
not more favorable to the transferor than those described in the Investor
Co-Sale Notice. Any proposed transfer on terms and conditions more favorable
than those described in the Investor Co-Sale Notice, as well as any subsequent
proposed transfer of any Investor Shares by the Transferring Investor, shall
again be subject to, and require compliance with, the provisions of Section 5
hereof.
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6. Exempt Transfers.
(a) Permitted Transactions by a Morton Entity.
Notwithstanding the foregoing, the rights of first refusal and co-sale rights of
the Company and the Investors set forth in Sections 3 and 4 and JWCI's co-sale
rights set forth in Section 4 shall not apply to (i) a gratuitous transfer of
the Stock made to a partnership or corporation or trust that is controlled by
Morton or a spouse or issue, including adopted children, of Morton, or to a
non-profit organization (or any employee thereof, provided that such transfers
are not made to any service providers of the Company and do not detrimentally
impact the Company as relates to FDA or NIH conflict of interest guidelines),
(ii) a transfer of title to the Stock effected pursuant to Morton's will or the
laws of intestate succession, (iii) transfers of the Stock to Morton's spouse,
lineal descendant or antecedent, father, mother, brother, sister, child, adopted
child or grandchild or adopted grandchild of Morton or Morton's spouse or the
spouse of any child, adopted child, grandchild or adopted grandchild of Morton
or Morton's spouse, or any trust for the benefit of Morton or any of the
foregoing, or (iv) as to the Morton A Shares only, the pledge of such shares to
an institutional investor that is reasonably acceptable to the Company;
provided, however, that each such transfer must be made in accordance with
applicable securities laws and the transferee shall furnish the Company and the
Investors and JWCI with written agreements, documents and opinions, in form and
substance reasonably acceptable to the Company and its counsel, to be bound by
and comply with all provisions of this Agreement and any documents or agreements
entered into in connection herewith. Such transferred Stock shall remain "STOCK"
hereunder, and such transferee shall be treated as a "MORTON ENTITY" for the
purposes of this Agreement.
(b) Indemnification by Morton. Each of the Morton
Entities agrees to indemnify, defend, and hold harmless the Company and the
Investors and each of their respective officers, directors, stockholders,
affiliates, employees and agents against any and all threatened or pending
claims, suits, actions, losses and damages of any kind (including, without
limitation, all costs and expenses and reasonable attorneys' fees) or
proceedings brought against the Company arising in any manner arising from a
transfer pursuant to subsection 6(a) above.
(c) Permitted Transactions by Investors. Notwithstanding
the foregoing, the co-sale rights of the Morton Entities set forth in Section 5
shall not apply to a gratuitous transfer of the Investor Shares made to a
transferee or assignee who is a general or limited partner or member or
stockholder (or retired general or limited partner or member) of an Investor or
the estate of such a partner or member (or retired general or limited or
member), or to any fund, partnership, corporation or company that is an
affiliate of an Investor or a spouse or issue, including adopted children, of an
Investor or to a trust for the exclusive benefit of any of the foregoing persons
or to a beneficial owner of Investor Shares for which Athenian Venture Partners
II L.P. serves as nominee, provided, however, that the transferee shall furnish
the Company with a written agreement to be bound by and comply with all
provisions of this Agreement; provided, further, that the foregoing co-sale
rights of the Morton Entities set forth in Section 5 shall not apply to a
transfer by CancerVax Research Foundation of its Investor Shares to any
tax-exempt, public charitable organization in order to comply with the minimum
distribution requirements for private foundations under 26 U.S.C. Section 4942.
Such transferred Investor Shares shall remain "INVESTOR SHARES" hereunder, and
such transferee shall be treated as an "INVESTOR" for the purposes of this
Agreement.
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7. Prohibited Transfers.
(a) Grants.
(i) Investor Grant. In the event a Morton Entity
should sell any Stock in contravention of the participation rights of the
Investors and JWCI under this Agreement as described in Section 4 above (an
"MORTON PROHIBITED TRANSFER"), the Investors and JWCI shall have, in addition to
such other remedies as may be available at law, in equity or hereunder, the put
option provided in Section 7(b).
(ii) Morton Grant. In the event an Investor
should sell any Investor Shares in contravention of the participation rights of
the Morton Entities under this Agreement as described in Section 5 above (an
"INVESTOR PROHIBITED TRANSFER"), the Morton Entities shall have, in addition to
such other remedies as may be available at law, in equity or hereunder, the put
option provided in Section 7(c).
(b) Investor/JWCI Put Option. In the event of a Morton
Prohibited Transfer, each Investor and JWCI shall have the option to sell to
such Morton Entity a number of shares of Common Stock (either directly or
through delivery of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, or, in the case of JWCI, Junior Preferred Stock) equal to the
number of shares which such Investor or JWCI, as the case may be, would have
been entitled to sell had the Morton Prohibited Transfer been effected in
accordance with Section 4 hereof, on the following terms and conditions:
(i) The price per share at which the shares are
to be sold to the Morton Entity shall be equal to the price per share paid to
such Morton Entity by the third-party purchaser or purchasers of the Stock in
the Morton Prohibited Transfer. Such Morton Entity shall also reimburse each
Investor and JWCI for any and all reasonable fees and expenses, including
reasonable legal fees and expenses, incurred pursuant to the exercise or the
attempted exercise of the Investors' and JWCI's rights under Section 4 hereof.
(ii) The Investors and JWCI shall deliver to such
Morton Entity, within ninety (90) days after the later of the dates on which the
Investors and JWCI received notice from such Morton Entity or otherwise become
aware of the Morton Prohibited Transfer, the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed for
transfer.
(iii) Such Morton Entity shall, upon receipt of
the certificates for the repurchased shares, pay the aggregate Section 7(b)(i)
purchase price therefor, by certified check or bank draft made payable to the
order of the Investors and JWCI exercising such option, and shall reimburse such
parties for any additional reasonable expenses, including reasonable legal fees
and expenses, incurred in effecting such purchase and resale.
(c) Morton Put Option. In the event of an Investor
Prohibited Transfer, each Morton Entity shall have the option to sell to the
transferring Investor a number of shares of Common Stock (either directly or
through delivery of Series A Preferred Stock) equal to the number of shares
which such Morton Entity would have been entitled to sell had the Investor
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Prohibited Transfer been effected in accordance with Section 5 hereof, on the
following terms and conditions:
(i) The price per share at which the shares are
to be sold to the Investors shall be equal to the price per share paid to the
transferring Investor by the third-party purchaser or purchasers of the Investor
Shares in the Investor Prohibited Transfer. Such transferring Investor shall
also reimburse each Morton Entity for any and all reasonable fees and expenses,
including reasonable legal fees and expenses, incurred pursuant to the exercise
or the attempted exercise of the Morton Entities' rights under Section 5 hereof.
(ii) The Morton Entities shall deliver to the
transferring Investor, within ninety (90) days after the later of the dates on
which a Morton Entity become aware of the Investor Prohibited Transfer, the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.
(iii) The transferring Investor shall, upon
receipt of the certificates for the repurchased shares, pay the aggregate
Section 7(c)(i) purchase price therefor, by certified check or bank draft made
payable to the order of each Morton Entity exercising such option, and shall
reimburse such Morton Entity for any additional reasonable expenses, including
reasonable legal fees and expenses, incurred in effecting such purchase and
resale.
(d) Notwithstanding the foregoing, any attempt by a
Morton Entity to transfer Stock in violation of Sections 3 or 4 hereof or by an
Investor to transfer Investor Shares in violation of Section 5 hereof, whether
voluntary or involuntary, shall be void and the Company agrees it will not
effect such a transfer nor will it treat any alleged transferee as the
stockholder of such shares without the written consent of (i) the holders of at
least sixty percent (60%) of the shares held by the Investors (with respect to a
violation of Sections 3 or 4 hereof) and JWCI (with respect to a violation of
Section 4 hereof) or (ii) Morton (with respect to a violation of Section 5
hereof).
8. Termination. Subject to Section 7(d), the right of first
refusal and the co-sale rights of an Investor under Sections 3 and 4 hereof,
JWCI's co-sale rights under Section 4 hereof, the correlative obligations of the
Morton Entities to such Investor and JWCI with respect to its Stock and the
Morton Entities' co-sale rights and correlative obligations under Section 5
hereof shall terminate at such time as such Investor or JWCI shall no longer be
the owner of any shares of the Company's capital stock. Unless sooner terminated
in accordance with the preceding sentence, the rights and obligations under
Sections 3, 4, 5 and 6 hereof shall terminate upon the occurrence of any one of
the following events:
(a) the liquidation, dissolution or indefinite cessation
of the business operations of the Company;
(b) the execution by the Company of a general assignment
for the benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
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(c) immediately prior to the closing of a bona fide firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended, on Form S-1 (or any successor form
designated by the Securities and Exchange Commission) that results in a
post-money valuation of the Company of at least $300,000,000 (based on the
offering price of the Company's Common Stock in such offering and including all
shares of Common Stock outstanding immediately after such offering and all
shares of Common Stock then issuable upon exercise of outstanding options to
purchase or rights to subscribe for Common Stock and conversion of all
convertible securities) and aggregate proceeds to the Company of at least
$50,000,000;
(d) the first date on which shares of the Company's
Common Stock are held of record by more than five hundred (500) persons;
(e) immediately prior to the consummation of a merger,
consolidation, reorganization or other transaction or series of related
transactions resulting in the exchange of outstanding shares of the Company's
securities such that the stockholders of the Company prior to such transaction
owns, directly or indirectly, less than fifty percent (50%) of the voting power
of the surviving entity;
(f) immediately prior to the consummation of a sale,
transfer or other disposition of all or substantially all of the Company's
assets; or
(g) the date on which this Agreement is terminated in
writing by the Company, the Morton Trust, JWCI and the holders of sixty percent
(60%) of the shares held by the Investors.
9. Miscellaneous Provisions.
(a) Bank Holding Company Act. The Company agrees to
cooperate and use its reasonable best efforts to take, or cause to be taken, all
reasonably necessary or appropriate action to ensure compliance with any legal
restriction to which any Investor is subject under the Bank Holding Company Act
of 1956, as amended, and the regulations promulgated thereunder.
(b) Stockholder Rights. Until such time as the Company
actually exercises the Company Option and/or the Investors actually exercise the
Investor Option or the Investor Over-Allotment Option, the Morton Entities (or
any successors in interest) shall have all the rights of a stockholder
(including voting and dividend rights) with respect to the Stock subject,
however, to the transfer restrictions of Section 1.
(c) Notice. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day; (iii) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the address as set forth on the signature page hereof or at
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such other address as such party may designate by advance written notice to the
other parties hereto.
(d) Severability. In the event one or more of the
provisions of this Agreement should, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed and interpreted in such manner as to be
effective and valid under applicable law.
(e) Waiver or Modification. Any amendment or modification
of this Agreement shall be effective only if evidenced by a written instrument
executed by (i) the Morton Trust, (ii) the Company and (iii) Investors, or their
assignees, holding not less than sixty percent (60%) of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as
a single class; provided, however, that any amendment or modification that
adversely affects JWCI shall require the prior written consent of JWCI.
(f) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California as applied
in contracts among California residents entered into and performed entirely
within California.
(g) Attorneys' Fees. In the event of any dispute
involving the terms hereof, the prevailing parties shall be entitled to collect
legal fees and expenses from the other party to the dispute.
(h) Further Assurances. Each party agrees to act in
accordance herewith and not to take any action which is designed to avoid the
intention hereof.
(i) Ownership. The Morton Entities represent and warrant
that they are the sole legal and beneficial owner of the shares of Stock subject
to this Agreement and that no other person or entity has any interest in such
shares. Notwithstanding the foregoing, the parties hereto acknowledge that
Morton's wife may or may not have a community property interest in such shares
(provided, however, any such interest is subject to the terms of the Transaction
Documents (as defined in that certain Series C Preferred Stock Purchase
Agreement, dated as of the date hereof, by and among the Company and certain of
the Investors (the "PURCHASE AGREEMENT")) and that the Morton Family Trust is
the sole shareholder of OncoVac.
(j) Successors and Assigns. This Agreement and the rights
and obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
(k) Aggregation of Stock. For the purposes of determining
the availability of any rights under this Agreement, the holdings of transferees
and assignees of an individual or a partnership who are spouses, ancestors,
lineal descendants or siblings of such individual or partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Common Stock by
gift, will or intestate succession) shall be aggregated together with the
individual or partnership, as the case may be, for the purpose of exercising any
rights or taking any action under this Agreement.
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(l) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(m) Separate Counsel. Each Morton Entity acknowledges and
agrees that it has been provided the opportunity and encouraged to consult with
counsel of such its own choosing with respect to this Agreement and that Latham
& Watkins LLP solely represents the interests of the Company and Morrison &
Foerster LLP and Heller Ehrman White & McAuliffe LLP solely represent the
interests of certain of the Investors.
(n) Legend. Each certificate representing (1) shares of
Stock now or hereafter owned by a Morton Entity and (2) Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock (or any shares of
Common Stock issued or issuable upon the conversion thereof) now or hereafter
owned by an Investor shall be endorsed with the following legends:
(i) "THESE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(ii) "THE SALE OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS'
AGREEMENT AMONG THE STOCKHOLDER, THE COMPANY AND CERTAIN
HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF
THE COMPANY."
(o) Power of Attorney. Pursuant to the Prior Agreement,
Morton's spouse appointed Morton as her true and lawful attorney in fact, for
her and in her name, place and stead, and for her use and benefit, to agree to
any amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Such power of attorney shall remain in
full force and effect, and Morton's agreement to the amendment and restatement
of this Agreement shall be deemed to be binding upon Morton's spouse.
(p) Amendment and Restatement of Prior Agreement. As of
the Effective Date, this Agreement hereby amends, restates and completely
supersedes the Prior Agreement and such agreement shall be terminated, void and
of no further effect as of the Effective Date.
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(q) Assignment. Each Investor, JWCI and Morton Entity may
assign its rights under this Agreement to the extent assigned in connection with
a transfer of stock in the Company, to any person or entity; provided, that,
such person or entity is not a direct competitor of the Company; provided,
further, that such transferee shall furnish the Company with written agreements,
documents, and opinions, in form and substance reasonably acceptable to the
Company and its counsel, to be bound by and comply with all provisions of this
Agreement and applicable securities laws; provided, further, that such transfer
of stock is otherwise permitted or not prohibited by the terms of this
Agreement.
(r) Entire Agreement. This Agreement and the documents
referenced herein constitute the entire agreement among the parties with respect
to the subject matter hereof and thereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein and therein with respect to the subject matter
hereof and thereof.
(s) Facsimile. This Agreement may be executed and
delivered by facsimile and upon such delivery the facsimile signature will be
deemed to have the same effect as if the original signature had been delivered
to the other party.
(t) Definitions. For purposes of this Agreement, the term
"affiliate" shall have the meaning ascribed to it in Rule 501 of the Securities
Act of 1933, as amended.
[Remainder of page intentionally left blank]
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The parties hereto have executed this Agreement as of the date first
written above.
COMPANY: CANCERVAX CORPORATION
By: /s/ David Hale
______________________________________
David F. Hale, Chief Executive Officer
Address: 2110 Rutherford Road
Carlsbad, CA 92008
[COUNTERPART SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT OF CANCERVAX CORPORATION]
<PAGE>
STOCKHOLDERS:
_________________________________________
By: _____________________________________
Address:
[COUNTERPART SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT OF CANCERVAX CORPORATION]
<PAGE>
CONSENT OF SPOUSE
I, _______________________, the spouse of Dr. Donald L. Morton, a party
to the foregoing Third Amended and Restated Stockholders' Agreement
("Agreement"), effective as of August 13, 2003, of CancerVax Corporation, a
Delaware corporation (the "Company"), acknowledge that I have reviewed the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in the Agreement or
any shares of the Company under the community property laws of the state of our
residence or similar laws relating to marital property in effect in the state of
our residence as of the date of the signing of the Agreement or thereafter. I
have been advised that I may have my own attorney review the Agreement and
associated documents, and have either consulted an attorney of my choice or
voluntarily elected not to consult legal counsel for this purpose.
Effective: August 13, 2003
Signature:___________________________
Print Name:__________________________