EXHIBIT 99.5
SHAREHOLDERS AGREEMENT
TAG-ALONG RIGHTS AND DRAG-ALONG RIGHTS
This SHAREHOLDERS AGREEMENT, dated as of April 23, 2003 (this
"Agreement"), among the holders (the "Holders") who have purchased the Class I
Convertible Preferred Stock (the "Convertible Preferred Stock") of FAO, Inc.
(the "Company") and the Company.
R E C I T A L S:
The Holders and the Company have entered into a Securities
Purchase Agreement, dated as of April 3, 2003 (the "Purchase Agreement"),
pursuant to which, among other things, the Holders agreed to purchase the
Preferred Stock.
The Convertible Preferred Stock is convertible into shares
(such shares as issued or issuable on conversion of the Convertible Preferred
Stock, until registration of such shares, the "Conversion Shares") of common
stock, with a par value of $0.001 per share, of the Company (the "Common
Stock").
As a condition to the Closing under the Purchase Agreement,
the parties hereto have agreed to enter into this Agreement.
In consideration of the foregoing and the mutual agreements
and covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Tag-Along Rights. If any Holder proposes to sell or
transfer ("Tag-Along Transfer") a number of Conversion Shares equal to or
greater than the number of Conversion Shares that would be received upon
conversion of 2,000 shares of Convertible Preferred Stock (which amount shall be
adjusted to account for any dividends on, subdivisions of, or combinations of,
Common Stock) held by such Holder to a Person who is not an Affiliate of such
Holder ("Third Party"), in a single transaction or a series of related
transactions, then, at least fifteen (15) days prior to any such Tag-Along
Transfer, such Holder shall provide to all other Holders a notice (a "Tag-Along
Notice") delivered to such Holders at their address set forth in the Purchase
Agreement, explaining the terms and conditions of such Tag-Along Transfer
(including the consideration to be paid) and identifying the name and address of
the Third Party. If such notice is sent, then, upon the written request
("Tag-Along Request") of any such Holder (a "Requesting Holder") made within ten
(10) days after the day the Tag-Along Notice is received by such Holder, the
Holder proposing to make the Tag-Along Transfer shall cause the Third Party to
purchase from each Requesting Holder a number of Conversion Shares equal to the
product of (A) the quotient of (1) the total number of Conversion Shares to be
subject to such Tag-Along Transfer divided by (2) the total number of Conversion
Shares held by the Holder proposing such Tag-Along Transfer and all Requesting
Holders, multiplied by (B) the total number of Conversion Shares the Requesting
Holder has requested to have transferred. Such purchase shall be made on the
same date and at the same price and on terms and conditions at least as
favorable to Requesting Holders as the terms and conditions contained in the
Tag-Along Notice delivered in connection with such proposed transaction. To the
extent a Holder does not receive a Tag-Along Request with respect to Conversion
Shares for which such Holder has provided a Tag-Along Notice within the time
period noted above, the Holder providing the Tag-Along Notice may sell the
shares proposed to be subject to such Tag-Along Transfer as set forth in the
Tag-Along Transfer Notice.
Each Requesting Holder shall effect its participation in a
Tag-Along Transfer by promptly delivering to the Holder who proposed the
Tag-Along Transfer (the "Proposing Holder"), for transfer to the Third-Party,
one or more certificates, properly endorsed for transfer, which represent the
Conversion Shares the Requesting Holder has requested be transferred. Upon
consummation of the Tag-Along Transfer, the Proposing Holder shall remit or
arrange for direct transfer to the Requesting Holder that portion of the sale
proceeds to which the Requesting Holder is entitled as a result of its
participation in the Tag-Along Transfer.
Notwithstanding the foregoing, Requesting Holders shall have
no rights under this Section 1 with respect to any Tag-Along Transfer by a
Holder to the extent such Tag-Along Transfer is (i) in the form of a
distribution to withdrawing partners from such Holder or otherwise among
Affiliates of such Holder; (ii) in connection with a call written against the
stock held by any Holder or a put right written with respect to stock held by a
Holder, the rights under this Section 1 shall not arise until exercise of such
put or call; (iii) any bona fide gift; or (iv) a transfer to the Proposing
Holder's ancestors, descendants or spouse, or to trusts for the benefit of such
persons or the Proposing Holder.
Any transferee of a Tag-Along Transfer shall take Conversion
Shares so transferred free of the rights and obligations of this Section. Any
transferee under a transfer not subject to this Section shall take Conversion
Shares so transferred subject to the rights and obligations of this Section.
2. Drag-Along Rights. In the event that the Company receives a
bona fide purchase offer from a non-affiliate of the Company (an "Offeror")
seeking to purchase the Company's outstanding equity, and (i) the Company's
Board of Directors and (ii) Holders of not less than 50% of the Conversion
Shares consent to such purchase, all Holders of Conversion Shares shall sell
their Conversion Shares (as Preferred Stock if such Preferred Stock has not yet
been converted) to such offeror at the price so approved. At least twenty (20)
but not more than ninety (90) days prior to any transfer to an Offeror (a
"Drag-Along Transfer"), the Company shall provide to the Holders a notice (a
"Drag-Along Notice") delivered to the Holders at their address set forth in the
Purchase Agreement, explaining the terms and conditions of such Drag-Along
Transfer (including the consideration to be paid), identifying the name and
address of the Offeror and indicating the date that is fifteen (15) days after
the mailing of the Drag-Along Notice (the "Response Date"). If such Drag-Along
Notice is sent, then, on or before the Response Date, each Holder that consents
to the Drag-Along Transfer shall provide written notice of such consent (the
"Consent Notice") to the Company. Any Consent Notice may be revoked prior to the
Response Date by sending an additional writing explicitly revoking such Consent
Notice. If the Company receives unrevoked Consent Notices from the requisite
Holders on or before the Response Date or any extension by the Company thereof
(not to exceed thirty days), the Company shall promptly send a second notice to
all Holders informing the Holders that the requisite Holders delivered Consent
Notices. If requisite Holders deliver Consent Notices on or prior to later of
the Response Date or any such extension, the purchase of all Conversion Shares
shall be deemed to have been made on the closing of the Drag-Along Transfer (the
"Closing Date") without further action by the Company or any Holder. Any share
certificates for Conversion Shares held by any Holder shall be deemed cancelled
on the Closing Date and each Holder shall promptly forward such certificate,
duly endorsed for transfer, to the Company upon the written request of the
Company. Upon consummation of the Drag-Along Transfer, the Company shall remit
or arrange for direct transfer to each Holder that portion of the sale proceeds
to which such Holder is entitled as a result of the Drag-Along Transfer.
3. Further Assurances. The Holders shall cooperate fully with
the Company to enable the parties to fulfill their obligations and
responsibilities under, and obtain the benefits of, this Agreement. The Holders
shall use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable laws, and execute and deliver such documents and other papers as may
be required or appropriate to carry out the provisions
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of this Agreement and to consummate, perform and make effective the transactions
(including any Drag-Along Transfer) contemplated hereby.
4. Term. This Agreement shall be effective as of the Effective
Time and shall terminate on the date the Holders no longer hold any Conversion
Shares (the "Term").
5. Amendments. This Agreement may not be amended except in a
writing signed by, or on behalf of, all parties hereto.
6. Notices. All notices, consents, instructions and other
communications required or permitted under this Agreement (collectively,
"Notice") shall be effective only if given in writing and shall be considered to
have been duly given when (i) delivered by hand, (ii) sent by telecopier (with
receipt confirmed), provided that a copy is mailed (on the same date) by
certified or registered mail, return receipt requested, postage prepaid, or
(iii) received by the addressee, if sent by Express Mail, Federal Express or
other reputable express delivery service (receipt requested), or by first class
certified or registered mail, return receipt requested, postage prepaid. Notice
shall be sent in each case to the appropriate addresses or telecopier numbers
set forth below (or to such other addresses and telecopier numbers as a party
may from time to time designate as to itself by notice similarly given to the
other parties in accordance herewith, which shall not be deemed given until
received by the addressee). Notice shall be given:
to the Holders at their address set forth in the Purchase
Agreement.
and to the Company at:
FAO, Inc.
0000 Xxxxxxxxxxx Xxxxxxxxx
Xxxx xx Xxxxxxx, XX
Attention: Legal
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxxxx@xxxxxx.xxx
with required copy to (which, in and of itself, shall not
constitute notice):
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx Xxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxx@xxxxxxxxx.xxx
7. Governing Law. This Agreement will be governed by and
construed under the laws of the State of New York without regard to
conflicts-of-laws principles that would require the application of any other
law.
8. Specific Performance. The Holders agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached,
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irreparable damage would occur, no adequate remedy at law would exist and
damages would be difficult to determine, and that, in the event of a breach or
threatened breach of this Agreement, the Holders shall be entitled to specific
performance, injunctive or other equitable relief, in addition to any other
remedy available at law or in equity, without posting bond or other undertaking.
9. Non-Compliant Tag-Along Transfers. The Holders agree that
Tag-Along Transfers attempted to be made in violation of this Agreement shall be
void. The Company agrees that it shall not (i) register Tag-Along Transfers of
Conversion Shares on its books nor issue new stock certificates in connection
with any such Tag-Along Transfer or (ii) remove or cause the removal of any
legend with respect to legended Conversion Shares proposed to be subject to a
Tag-Along Transfer, in each case, until it shall first have received a copy of a
Tag-Along Notice with respect to the securities proposed to be subject to a
Tag-Along Transfer and then only in accordance with such Tag-Along Notice and
any related Tag-Along Request received after the Tag-Along Notice and prior to
such action by the Company.
10. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be adjusted rather than voided, if possible, in order to achieve the intent of
the parties to this Agreement to the extent possible, without invalidating or
adjusting the remaining provisions hereof, and any such prohibition,
unenforceability or adjustment in any jurisdiction shall not invalidate, render
unenforceable or adjust such provision in any other jurisdiction.
11. Successors and Assigns; Assignment. All covenants and
agreements in this Agreement contained by or on behalf of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
the parties.
12. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement. The exchange of copies of this Agreement and of
signature pages by facsimile transmission shall constitute effective execution
and delivery of this Agreement as to the parties and may be used in lieu of the
original Agreement for all purposes. Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
FAO, INC.,
a Delaware corporation
By
Name:
Title:
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
SAKS INCORPORATED,
a Tennessee corporation
By
Name:
Title:
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
XXXX XXXXX,
an Individual
By
Xxxx Xxxxx
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.
By Xxxxx Xxxxxxxx Investment Management, Inc.
a Nevada corporation
By
Name:
Title:
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
XXXXXXX XXXXX,
an Individual
By
Xxxxxxx Xxxxx
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
XXXXXXX PARK CAPITAL II, L.P.
a Delaware limited partnership
By Xxxxxxx Park Associates III, LLC
a Delaware limited partnership
By
Name:
Title:
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
WOODACRES LLC
By
Name:
Title:
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
XXXXXXX XXXXXX,
an Individual
By
Xxxxxxx Xxxxxx
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
XXX XXXXXX, as Trustee
Amended and Restated Les and Xxxxx Xxxxxx
Revocable Trust U/A Dated June 5, 2002
By
Xxx Xxxxxx
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