EXHIBIT 4.2
MSS-DELAWARE, INC.
STOCKHOLDERS' AGREEMENT
DATED AS OF
AUGUST 3, 1998
TABLE OF CONTENTS
SECTION 1. DEFINITIONS...................................................................1
SECTION 2. TRANSFER OF SECURITIES........................................................4
2.1. General Prohibition on Transfer...............................................4
2.2. Right of First Offer..........................................................4
2.3. Tag-Along Right...............................................................6
2.4. Exempt Transfer...............................................................8
2.5. Related Party.................................................................8
2.6. Company Sale..................................................................9
2.7. Other Restrictions on Transfer...............................................10
2.8. Certain Legal Requirements...................................................10
SECTION 3. PREEMPTIVE RIGHT.............................................................11
SECTION 4. REGISTRATION RIGHT...........................................................12
4.1. Piggyback Registration Rights................................................12
4.2. Demand Registration Rights...................................................14
4.3. Registration Procedures......................................................16
4.4. Restrictions on Public Sale..................................................20
4.5. Registration Expenses........................................................21
4.6. Indemnification..............................................................22
4.7. Rule 144.....................................................................24
4.8. Participation in Underwritten Registrations..................................24
4.9. Other Registration Rights....................................................25
4.10. Definition of Registrable Securities.........................................25
SECTION 5. GOVERNANCE...................................................................25
5.1. Initial Board................................................................25
5.2. Size and Composition of Board................................................25
5.3. Removal, Replacement.........................................................27
5.4. Insurance....................................................................27
5.5. Board Approvals..............................................................27
5.6. Certain Approvals............................................................28
5.7. Board Meetings...............................................................29
5.8. Amended and Restated Certificate of Incorporation and By-Laws................29
SECTION 6. TERMINATION AND AMENDMENT....................................................30
SECTION 7. MISCELLANEOUS................................................................30
7.1. Legend.......................................................................30
7.2. Successors, Assigns and Transferees..........................................31
7.3. Specific Performance, Etc....................................................31
7.4. Governing Law................................................................31
7.5. Interpretation...............................................................31
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7.6. Notices......................................................................31
7.7. Inspection and Compliance with Law...........................................33
7.8. Amendments and Waivers.......................................................33
7.9. Transfers Void...............................................................34
7.10. Counterparts.................................................................34
7.11. Attorneys' Fees..............................................................34
7.12. Severability.................................................................34
7.13. Federated....................................................................34
7.14. Redesignation of Voting Common Stock.........................................34
7.15. XxXxxxxxx....................................................................34
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STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT ("Agreement") is entered into as of
August 3, 1998 by and among (i) MSS-DELAWARE, INC., a Delaware corporation
(the "Company"), (ii) MSS ACQUISITION CORP. II, a Delaware corporation ("Bear
Xxxxxxx"), (iii) FEDERATED SPECIALTY STORES, INC., a Delaware corporation
("Federated"), and (iv) Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxxx and Xxxx X. Xxxxx
(collectively, the "Management").
RECITALS:
A. Federated has agreed to acquire 6,000 shares of Series A
Preferred Stock pursuant to that certain Acquisition Agreement dated as of
July 22, 1998 (the "Purchase Agreement") by and between Federated and the
Company and has been granted an option to purchase 4,333 shares of Common
Stock of the Company from Bear Xxxxxxx pursuant to the Federated Option
Agreement.
B. Bear Xxxxxxx has agreed to purchase 65,000 shares of Common
Stock and 6,250 shares of the Series B Preferred Stock and the Management,
collectively, has agreed to purchase 17,500 shares of Common Stock, in each
case from the Company pursuant to that certain Stock Purchase Agreement dated
as of August 3, 1998 (the "Stock Purchase Agreement") by and among Bear
Xxxxxxx, the Management and the Company.
C. It is a condition precedent to the obligations of: (i) Bear
Xxxxxxx and the Management under the Stock Purchase Agreement, and (ii)
Federated under the Purchase Agreement that the parties hereto enter into this
Agreement.
D. All of the Stockholders desire to enter into this Agreement for
the purpose of regulating certain aspects of the Stockholders' relationships
with regard to each other and the Company.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the Company and
Stockholders agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings:
"Bear Xxxxxxx Parties" means at any time, collectively, Bear Xxxxxxx
and its Related Parties who then own voting Common Stock.
"Bear Xxxxxxx Shares" means the voting Common Stock held at any time
by the Bear Xxxxxxx Stockholders.
"Bear Xxxxxxx Stockholder" means each of Bear Xxxxxxx and any
subsequent holder of Shares (other than the Company) who acquires the same
directly or indirectly from a Bear Xxxxxxx Stockholder other than in a
transaction set forth in clauses (iii), (v), (vii) or (viii) of the definition
of Exempt Transfers (as provided in Section 2.4).
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company and any other capital stock of the Company into which such Common
Stock is reclassified or reconstituted including, unless otherwise stated, any
non-voting Common Stock of the Company.
"Company Sale" means a transaction, whether in a single transaction or
in a series of related transactions pursuant to which a person or group of
persons independent of, and which is not an Affiliate of Bear Xxxxxxx (a)
acquires, whether by merger, stock purchase, recapitalization, reorganization,
redemption, issuance of capital stock or otherwise, more than 50% of the other
outstanding Common Stock and, following consummation of the transaction, Bear
Xxxxxxx owns less than half of the outstanding Common Stock acquired by it on
the date hereof or (b) acquires assets (whether by purchase, lease or
otherwise) constituting all or substantially all of the assets of the Company
and its Subsidiaries.
"XxXxxxxxx"' means Xxxxx Xx Xxxxxxx Group, Inc. and any Affiliate of
Xxxxx XxXxxxxxx Group, Inc.
"Exempt Transfer" see Section 2.4.
"Federated Option" means the option to purchase 4,333 shares of Common
Stock of the Company granted to Federated by Bear Xxxxxxx pursuant to the
Federated Option Agreement.
"Federated Option Agreement" means that certain Option Agreement by
and between Federated and Bear Xxxxxxx.
"Federated Shares" means the voting Common Stock held at any time by
the Federated Stockholders.
"Federated Stockholder" means each of Federated and any subsequent
holder of Shares (other than the Company) who acquires the same directly or
indirectly from an Federated Stockholder other than in a transaction set forth
in clauses (iii) or (v) of the definition of Exempt Transfers (as provided in
Section 2.4).
"Management Parties" means at any time, the Management who are then
employed by the Company or its Subsidiaries who then own voting Common Stock
and their Related Parties who then own voting Common Stock. For the purposes
of this definition and Section 5.2, voting Common Stock held by a voting trust
for Management shall not be included in the determination of the number of
shares of voting Common Stock owned by any Management Party unless the member
of Management whose voting Common Stock is held in trust is then employed by
the Company or its Subsidiaries.
"Management Shares" means the voting Common Stock held at any time by
the Management Stockholders.
"Management Stockholder" means each of Management and any subsequent
holder of Shares (other than the Company) who acquires the same directly or
indirectly from a Management Stockholder other than in a transaction set forth
in clauses (iii) or (v) of the definition of Exempt Transfers (as provided in
Section 2.4).
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"On a Fully Diluted Basis" with respect to the Company's Common Stock
means the number of shares of Common Stock which will be issued and
outstanding after giving effect to the transactions contemplated by the Stock
Purchase Agreement plus the number of shares of Common Stock issuable pursuant
to the Stock Option Plan as of the applicable date of determination.
"Qualified Public Offering" see Section 3.1.
"Related Party" see Section 2.5.
"Series A Preferred Stock" means the 6% Series A Exchangeable
Redeemable Preferred Stock, par value $.01 per share, of the Company and any
other capital stock of the Company into which such Series A Preferred Stock is
reclassified or reconstituted.
"Series B Preferred Stock" means the 12 1/2% Series B Redeemable
Preferred Stock, par value $.01 per share, of the Company and any other
capital stock of the Company into which such Series B Preferred Stock is
reclassified or reconstituted.
"Shares" means (i) any shares of the capital stock of the Company
other than the Series A Preferred Stock and the Series B Preferred Stock and
(ii) any securities convertible into, and any rights, options or wan-ants
exchangeable or exercisable for, any of the shares of the capital stock of the
Company, in either case, at any time outstanding including, without
limitation, the Federated Option.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
"Stock Adjustment" see Section 2.6.1.
"Stockholders" means the Persons identified on the signature page
hereto as "Stockholders" including, without limitation, Federated and such
other persons who become parties hereto pursuant to Section 2.1 hereof
"Stock Option Plan" means one or more employee stock option plans duly
adopted by the Board of Directors of the Company providing for the issuance to
certain employees of the Company and its Subsidiaries of options to purchase
up to 17,500 shares of Common Stock (which may be non-voting Common Stock).
"Subsidiary" of any specified person or entity means a corporation or
other entity of which a majority of the voting power of the equity securities
or other equity interests is owned, directly or indirectly, by such specified
person or entity or any Subsidiary of such specified person or entity.
"Transfer" see Section 2.1.
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SECTION 2. Transfer of Securities.
2.1. General Prohibition on Transfer. No Stockholder shall sell,
assign, transfer, pledge, hypothecate, encumber or in any way dispose of
("Transfer") any Shares unless (i) such Stockholder has complied with the
provisions of this Section 2, (ii) the transferee (if other than the Company
or a transferee of Shares pursuant to a transaction set forth in clause (iii)
of the definition of Exempt Transfers (as set forth in Section 2.4) has agreed
to become a party to, and be bound by the terms of, this Agreement and has
executed a supplemental agreement hereto in form and substance reasonably
satisfactory to the Company, and (iii) such Stockholder has delivered to the
Company an opinion of such Stockholder's counsel, in form and substance
reasonably satisfactory to the Company, to the effect that such Transfer is
either exempt from the registration requirements of the Securities Act and the
applicable securities laws of any state or that such registration requirements
have been complied with.
2.2. Right of First Offer.
2.2.1. If any Stockholder other than a Bear Xxxxxxx
Stockholder who is not prohibited by Section 2.7 from Transferring any
of his Shares (a "Seller"), desires to Transfer any or all of the
Shares (the "Transfer Stock") then owned by such Seller to any person
other than pursuant to an Exempt Transfer (as defined in Section 2.4
below), such Seller shall reduce to writing the terms pursuant to
which such Seller desires to Transfer such Shares (a "Transfer
Offer"). Such Transfer Offer shall identify the number of shares of
Transfer Stock, the price of the Transfer Stock, the identity of any
third party offeror, if any, and all the other material terms and
conditions of such Transfer Offer. The Seller shall provide a written
notice (the "Transfer Notice") of such Transfer Offer to the Company
and the Company shall promptly, but in no event later than fifteen
(15) business days following receipt of notice from the Seller,
provide written notice of such Transfer Offer to the Bear Xxxxxxx
Stockholders (the "Transfer Offerees"). The Transfer Notice shall
contain an irrevocable offer (a "First Offer") to sell the Transfer
Stock to the Transfer Offerees at a price equal to the price and upon
substantially the same terms as the terms contained in such Transfer
Offer. The Transfer Offerees shall have the irrevocable right and
option (the "Right of First Offer"), exercisable as provided below, to
accept the First Offer as to any or all Shares of the Transfer Stock
(subject to the priorities, pro rata adjustments and other provisions
set forth below). Each Transfer Offeree that desires to exercise such
option with respect to a First Offer shall provide the Seller with an
irrevocable written notice of acceptance specifying the number of
Shares of the Transfer Stock which such Transfer Offeree is agreeing
to purchase pursuant to such First Offer (including any number of
Shares in excess of such Transfer Offeree's pro rata portion of the
Transfer Stock (the "Excess Shares"), which shall be binding on said
Transfer Offeree for the number of Shares in such notice of
acceptance, or the lesser number of Shares if so allocated pursuant to
Section 2.2.2 which notice of acceptance must be provided to the
Seller within fifteen (15) business days after the date the Transfer
Notice is given (the "Notice Period"), and a copy of which shall
simultaneously be provided to the Company. The Company shall promptly
distribute such notice of acceptance to all other Transfer Offerees.
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2.2.2. Subject to the Seller's rights pursuant to Section
2.2.5, the allocation of Transfer Stock to Transfer Offerees pursuant
to a First Offer shall be made as follows:
(a) Each Transfer Offeree is entitled to purchase a number
of Shares of the Transfer Stock pro rata with all other Transfer
Offerees based on the respective holdings on the date of delivery of
the Transfer Offer to the Company of Common Stock by each Transfer
Offeree at the time of such First Offer.
(b) If every Transfer Offeree requests to purchase a number
of Shares of Transfer Stock equal to or greater than such Transfer
Offeree' s pro rata portion, then each Transfer Offeree shall be
entitled to receive such Transfer Offeree's pro rata portion of the
Transfer Stock (as calculated and set forth in clause (A) above)
(c) If any Transfer Offeree requests to purchase a number
of Shares less than its respective pro rata portion of the Transfer
Stock, each Transfer Offeree shall (x) first, be entitled to receive
the number of Shares of Transfer Stock requested for purchase by such
Transfer Offeree or, if less, the number of Shares of Transfer Stock
equal to such Transfer Offeree's pro rata portion of the Transfer
Stock (as calculated and set forth in clause (A) above), and (y)
second, be entitled to receive that number of any Excess Shares
requested by such Transfer Offeree equal to the lesser of (A) the
total number of Excess Shares such Transfer Offeree requested and (B)
such Transfer Offeree's allocable portion of all Excess Shares based
on the respective number of shares of Common Stock held by each
Transfer Offeree who requested Excess Shares, applied on an iterative
basis to the extent that any such Transfer Offeree's request shall be
satisfied in full without all Excess Shares being allocated.
2.2.3. Subject to the Seller's rights under Section 2.2.5 the
closing of the purchases of the Transfer Stock by the Transfer
Offerees who have exercised the options granted pursuant to this
Section 2.2 shall take place at the principal office of the Company on
or before the thirtieth (30th) business day after the expiration of
the Notice Period. At such closing, such Transfer Offerees shall
deliver a certified check or checks in the appropriate amount to the
Seller against delivery of certificates representing the Transfer
Stock so purchased, duly endorsed in blank by the person or persons in
whose name a stock certificate is registered or accompanied by a duly
executed assignment separate from the certificate with the signatures
thereon guaranteed by a commercial bank or trust company.
2.2.4. If any shares of the Transfer Stock allocated to an
accepting Transfer Offeree are not purchased by such Transfer Offeree
(collectively, the "Transfer Default Stock"), any or all such Shares
of Transfer Default Stock may be purchased by the other accepting
Transfer Offerees (the "Default Offerees") but only within five (5)
business days after notice of the availability of such Transfer
Default Stock, allocated among such Default Offerees in the manner as
Shares of Transfer Stock are required to be allocated to Transfer
Offerees as provided in Section 2.2.2 above. Nothing herein shall
limit the Seller's legal or equitable remedies against any such
defaulting Transfer Offeree. If the Default Offerees do not choose to
purchase all of the Transfer Default Stock, the Seller shall have the
rights set forth in Section 2.2.5.
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2.2.5. Notwithstanding the exercise by any Transfer Offeree of
its rights under this Section 2.2, if at the end of the Notice Period
the Transfer Offerees shall have collectively agreed to purchase less
than all of the Transfer Stock covered thereby (a "Partial Purchase
Commitment"), the Seller shall promptly notify the Company and the
accepting Transfer Offerees, as to whether or not it shall accept such
Partial Purchase Commitment. If such Partial Purchase Commitment is
accepted, the closing for such purchase of a portion of such Transfer
Stock shall take place pursuant to Section 2.2.3 hereof. Upon
acceptance by the Seller of the Partial Purchase Commitment, the
Seller shall have the right within the time hereinafter specified to
Transfer any Transfer Stock not included in the Partial Purchase
Commitment at a price not less than and on terms no more favorable to
the purchaser than were in the Transfer Notice. If the Seller
determines not to accept the Partial Purchase Commitment, the Seller
shall have the right, subject to Section 2.3 below, within the time
hereinafter specified to Transfer any or all of the Transfer Stock at
a price not less than and on terms no more favorable to the purchaser
than contained in the Transfer Notice. If the Company notifies the
Seller that no Transfer Offeree has agreed to purchase any portion of
the Transfer Stock, or the Seller has accepted a Partial Purchase
Commitment and desires to Transfer the remaining Transfer Stock, or
the Seller has rejected the Partial Purchase Commitment and desires to
Transfer the Transfer Stock, subject to Section 2.3 below, the Seller
shall have one hundred twenty (120) days from the end of the Notice
Period (the "Sales Period"), in which to Transfer any or all of the
Transfer Stock at a price not less than and on terms no more favorable
than were contained in the Transfer Notice. No sale may be made to any
third party unless such third party agrees in writing, in form and
substance reasonably acceptable to the Company, to be bound by the
provisions of this Agreement, as a Stockholder. Promptly after any
sale pursuant to this Section 2.2, the Seller shall notify the Company
of the consummation thereof and shall furnish such evidence of the
completion (including time of completion) of such sale and of the
terms thereof as the Company may reasonably request. If, at the
termination of the Sales Period, the Seller has not completed the sale
of all the Transfer Stock, such Seller shall no longer be permitted to
Transfer such Transfer Stock pursuant to this Section 2.2 without
again fully complying with the provisions of this Section 2.2 and all
the restrictions on Transfer contained in this Agreement shall again
be in effect with respect to all such Seller's Transfer Stock.
2.3. Tag-Along Right.
2.3.1. In the event that one or more Bear Xxxxxxx Stockholders
("Seller") propose to Transfer (in a single Transfer or a series of
related Transfers) shares of Common Stock provided that the Transfer
is not an Exempt Transfer or a Transfer to other Stockholders pursuant
to the Right of First Offer set forth in Section 2.2, then each of the
Stockholders other than the Seller (collectively, the "Tag-Along
Stockholders") shall have the right (the "Tag-Along Right") to require
the proposed purchaser to purchase from such Tag-Along Stockholder up
to the number of whole shares of Common Stock not to exceed the number
derived by multiplying the total number of shares of Common Stock the
Seller proposes to Transfer by a fraction, the numerator of which is
the total number of shares of Common Stock owned by such Tag-Along
Stockholder, and the denominator of which is the total number of
shares of Common Stock owned by the Seller and all Tag-Along
Stockholders. Any shares of Common Stock purchased from Tag-Along
Stockholders
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pursuant to this Section 2 shall be paid for in cash, at the same
price per share and upon the same terms and conditions as such
proposed Transfer by the Seller.
2.3.2. The Seller shall promptly notify the Tag-Along
Stockholders in writing and shall include in such notice (a "Sale
Notice), the principal terms and conditions of the proposed Transfer
including the sale price per share, the number of shares of Common
Stock proposed to be sold by the Seller and the total number of shares
of Common Stock held by the Seller and all Tag-Along Stockholders, in
the event it proposes to make a Transfer giving rise to the Tag-Along
Right. The Tag-Along Right may be exercised by any Tag-Along
Stockholder (each, a "Participating Tag-Along Stockholder") by
delivery of a written notice to the Seller proposing to sell shares of
Common Stock (the "Tag-Along Notice") within fifteen (15) days
following delivery of the Sale Notice by the Seller. The Tag-Along
Notice shall state the amount of shares that such Participating
Tag-Along Stockholder proposes to include in such Transfer to the
proposed purchaser (not to exceed the number determined as aforesaid)
. Each Tag-Along Stockholder who has not so delivered a Tag-Along
Notice as set forth above shall be deemed to have waived all of his
rights with respect to participating in the Transfer, and the Seller
and the Participating Tag-Along Stockholders shall thereafter be free
to sell to the proposed purchaser, at a price no greater than I 110% of
the price for such shares of Common Stock set forth in the Tag-Along
Notice and on other principal terms which are not substantially more
favorable to the Seller and the Participating Tag-Along Stockholders
than those set forth in the Sale Notice, without any further
obligation to such non-accepting Tag-Along Stockholders. If, prior to
consummation, the terms of such proposed Transfer shall change with
the result that the price shall be greater than 110% of the share
price for such shares of Common Stock set forth in the Tag-Along
Notice or the other principal terms shall be substantially more
favorable to the Seller and the Participating Tag-Along Stockholders
than those set forth in the Sale Notice, it shall be necessary for a
separate Sale Notice to be furnished, and the terms and provisions of
this Section 2.3 separately complied with, in order to consummate such
proposed Transfer pursuant to this Section 2.3.
2.3.3. The acceptance of each Participating Tag-Along
Stockholder shall be irrevocable except as hereinafter provided, and
each such Participating Tag-Along Stockholder shall be bound and
obligated to sell in the Transfer on the same terms and conditions,
with respect to each share of Common Stock sold, as the Seller, such
number of shares of Common Stock as such Participating Tag-Along
Stockholder shall have specified in such Tag-Along Notice. In the
event the Seller shall be unable to obtain the inclusion in the
Transfer of the entire number of shares of Common Stock which the
Seller and each Participating Tag-Along Stockholder desires to have
included in the Transfer (as evidenced in the case of the Seller by
the Tag-Along Notice and in the case of each Participating Tag-Along
Stockholder by such Participating Tag-Along Stockholder's Tag-Along
Notice), the number of shares of Common Stock to be sold in the
Transfer by the Seller and each Participating Tag-Along Stockholder
shall be reduced on a pro rata basis according to the proportion which
the number of shares of Common Stock which the Seller and each
Participating Tag-Along Stockholder desires to have included in the
Transfer, respectively, bears to the total number of shares of Common
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Stock desired by the Seller and all the Participating Tag-Along
Stockholders to have included in the Transfer.
2.3.4. If at the end of the 120th day following the date of
the delivery of the Sale Notice the Seller has not completed the
Transfer (other than as a result of a breach of this Agreement by a
Participating Tag-Along Stockholder), each Participating Tag-Along
Stockholder shall be released from its obligations under his Tag-Along
Notice, the Sale Notice shall be null and void, and it shall be
necessary for a separate Sale Notice to be furnished, and the terms
and provisions of this Section 2.3 separately complied with, in order
to consummate such Transfer pursuant to this Section 2.3.
2.4. Exempt Transfer. The following transactions shall constitute
"Exempt Transfers" for the purpose of Section 2.2, Section 2.3, Section 2.6
and Section 2.7: (i) a Transfer of Shares by a Stockholder to the Company,
(ii) a Transfer of Shares by a Stockholder to any Related Party of such
Stockholder, (iii) a Transfer of Shares by a Stockholder to the public
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 promulgated thereunder, (iv) a Transfer of Shares that
has been approved in writing as an Exempt Transfer by the holders of a
majority of the Bear Xxxxxxx Shares and the holders of a majority of the
Management Shares, (v) any Transfer of Shares pursuant to the exercise of such
Stockholder's Tag-Along Rights, (vi) any Transfer by a Bear Xxxxxxx
Stockholder that would not result in Bear Xxxxxxx and its Related Parties
holding less than eighty-five percent (85%) of the shares of Common Stock held
by all Bear Xxxxxxx Stockholders on the date of this Agreement other than the
Shares subject to the Federated Option and the Shares which may be Transferred
to XxXxxxxxx, as described in subsection (vii) of this Section 2.4, (vii) any
Transfer by a Bear Xxxxxxx Stockholder of up to 9,300 shares of its Common
Stock to XxXxxxxxx and (viii) any Transfer of Common Stock to the holder of
the Federated Option upon exercise of the Federated Option.
2.5. Related Party. As used herein, the term "Related Party" with
respect to any Stockholder means: (A) any person or entity that directly or
indirectly, through one or more intermediaries, has control of or is
controlled by, or is under common control with, the person or entity specified
(an "Affiliate"); (B) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, or owners, or persons holding a
controlling interest of which consist of such Stockholder and/or such other
persons or entities referred to in the immediately preceding clause (A) or the
immediately following clause (C); (C) with respect to any Stockholder which is
an individual, such Stockholder's spouse, siblings, children, grandchildren or
parents; (D) with respect to any Stockholder which is a partnership, such
Stockholders' partners as of the date hereof; (E) with respect to any Bear
Xxxxxxx Stockholder shall include, without limitation, any fund or other
Person under the control or direction of Bear Xxxxxxx or its Related Parties
(provided that if such Related Party is a competitor of the Company of the
kind described in Section 2.7.2, the transferring Bear Xxxxxxx Stockholder
shall take reasonable steps to cause confidential financial information
relating to the Company to which the Bear Xxxxxxx Stockholders have access by
virtue of their ownership of Common Stock to be withheld from such Related
Party); and (F) with respect to the Management, shall include a voting trust
established by the Management giving Xxxxxx Xxxxxx the exclusive right to
exercise all votes exercisable in respect of the Management Shares.
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2.6. Company Sale.
2.6.1. If, at any time that Bear Xxxxxxx Parties own at least
25,000 shares of Common Stock (which such number shall be adjusted as
determined by the Board of Directors to reflect any subdivision of
shares of Common Stock into a greater number of Shares and any
combination of its outstanding shares of Common Stock into a smaller
number of Shares (each, a "Stock Adjustment")), the holders of a
majority of the Common Stock held by the Bear Xxxxxxx Parties approve
a Company Sale (the "Approved Sale"), the Stockholders shall consent
to and raise no objections against the Approved Sale of the Company,
and if the Approved Sale of the Company is structured as a sale of
stock, the holders of Common Stock shall sell their shares of Common
Stock on the terms and conditions approved by the holders of a
majority of the Common Stock held by the Bear Xxxxxxx Parties. All
holders of Common Stock shall take all actions that the holders of a
majority of the Common Stock held by the Bear Xxxxxxx Parties
reasonably deem necessary or desirable in connection with the
consummation of the Approved Sale of the Company including, without
limitation, voting their Shares in favor of any resolution of
Stockholders in which the Approved Sale is considered.
2.6.2. The obligations of the holders of Common Stock with
respect to the. Approved Sale of the Company are subject to the
satisfaction of the condition that, upon the consummation of the
Approved Sale (i) all of the Common Stock will receive the same form
and amount of consideration per share of Common Stock, provided, that
if any holders of Common Stock are given an option as to the form and
amount of consideration to be received, all holders will be given the
same option, (ii) the Bear Xxxxxxx Parties receive nothing of value
pursuant to the transaction other than the same transactional
consideration per share receivable by all similarly situated
Stockholders, plus customary indemnification rights and customary fees
for financial advisory and investment banking services rendered and
reimbursement of all third party costs, and an officer of the Beat
Xxxxxxx Parties certifies as to the foregoing, and (iii) the aggregate
maximum liability of any holder of Common Stock under any
representations, warranties and indemnities given in connection with
the Approved Sale shall not exceed the proceeds received by such
holder of Common Stock as a result of the Approved Sale (unless such
holder of Common Stock otherwise consents) and (iv) the terms of the
Approved Sale do not impose any non compete obligation on the
Management in excess of that set forth in their respective employment
agreements with the Company or a Subsidiary.
2.6.3. If the Company or the holders of the Company's
securities enter into any negotiation or transaction for which Rule
506 (or any similar rule then in effect) promulgated by the Securities
and Exchange Commission may be available with respect to such
negotiation or transaction (including a merger, consolidation or other
reorganization), the holders of Management Shares will, at the request
of the Company, appoint a purchaser representative (as such term is
defined in Rule 501 of the Securities Act) reasonably acceptable to
the Company. If any holder of Management Shares appoints a purchaser
representative designated by the Company, the Company will pay the
fees of such purchaser representative, but if any holder of Management
Shares declines to appoint another purchaser representative designated
by the Company, such holder will appoint another purchaser
representative (reasonably acceptable to the
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Company), and such holder will be responsible for the fees of the
purchaser representative so appointed.
2.6.4. The holders of Common Stock will bear their pro rata
share (based upon the number of shares held by such holders that are
sold) of the costs of any sale of Common Stock pursuant to an Approved
Sale to the extent such costs are incurred for the benefit of all
holders of Common Stock and are not otherwise paid by the Company or
the acquiring party.
2.7. Other Restrictions on Transfer.
Notwithstanding any other provision hereof:
2.7.1. Except for an Exempt Transfer or with the prior written
consent of the holders of a majority of the Bear Xxxxxxx Shares or a
Transfer upon an Approved Sale, no Management Stockholder may Transfer
any Shares held by him until the third anniversary of the date of this
Agreement. No Management Stockholder may pledge, hypothecate or
encumber the Shares owned by him at any time.
2.7.2. Except for an Exempt Transfer or an Approved Sale, or
with the prior written consent of the holders of a majority of the
Management Shares, no Bear Xxxxxxx Stockholder may Transfer any Shares
held by him (i) until the second anniversary of the date of this
Agreement or (ii) to any Person or an Affiliate of any Person whose
principal business competes with the business of the Company and whose
principal business is the sourcing and retailing of private label
specialty men's. and women's apparel which retails at similar price
points in substantially the same geographic area within the United
States as the Company; and
2.7.3. Except for an Exempt Transfer or upon an Approved Sale,
no Federated Stockholder may Transfer any Shares held by him to any
Person or any Person who is an Affiliate of any Person that engages in
any business that competes with the businesses then conducted by the
Company and its Subsidiaries.
2.8. Certain Legal Requirements. In the event the consideration to
be paid in exchange for shares of Common Stock in the proposed Transfer
pursuant to Section 2.3 or Section 2.6 includes any securities and the receipt
thereof by a holder of Common Stock as a Participating Tag-Along Stockholder
or pursuant to an Approved Sale (collectively, the "Participating Sellers")
would require under applicable law either (i) the registration or
qualification of such securities or of any person as a broker or dealer or
agent with respect to such securities or (ii) the provision to any participant
in the Transfer of any information other than such information as would be
required under Regulation D in an offering made pursuant to Regulation D
solely to "accredited investors" as defined in Regulation D, the Seller shall
be obligated only to use its reasonable efforts to cause the requirements
under Regulation D to be complied with to the extent necessary to permit such
Participating Seller to receive such securities, but shall not have any
obligation to effect a registration of such securities under the Securities
Act or similar state statutes. If use of reasonable efforts would not result
in the applicable requirements being complied with to the extent necessary to
permit such Participating Seller to receive such
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securities, the Seller may cause to be paid to such Participating Seller in
lieu thereof, against surrender of the shares of Common Stock which would have
otherwise been sold by such Participating Seller to the proposed buyers under
Section 2.3 or Section 2.6 (collectively, the "Proposed Buyers") in the
Transfer, an amount in cash equal to the fair market value of the securities
which such Participating Seller would otherwise receive as of the date of the
issuance of such, securities in exchange for shares of Common Stock (as
determined by the Board of Directors (including the affirmative vote of a
member of the Board of Directors appointed pursuant to Section 5.2.3, if
any)), except that in connection with a proposed Transfer pursuant to Section
2.3, any Participating Seller may elect to be excluded from the Transfer
rather than receiving cash pursuant to this Section 2.8. The obligation of the
Seller to use reasonable efforts to cause such requirements to have been
complied with to the extent necessary to permit a Participating Seller to
receive such securities shall be conditioned on such Participating Seller
executing such documents and instruments, and taking such other actions
(including, without limitation, if required by the Seller, agreeing to be
represented during the course of such transaction by a "purchaser
representative" (as defined in Regulation D) in connection with evaluating the
merits and risks of the prospective investment and acknowledging that he was
so represented), as the Seller shall reasonably request in order to permit
such requirements to be complied with. Each Participating Seller agrees to
take such actions as the Seller shall reasonably request in order to permit
such requirements to be complied with, and no Participating Seller shall have
the right to require that such Participating Seller receive cash in lieu of
securities if such requirements have not been complied with by such
Participating Seller.
SECTION 3. Preemptive Right. The Company hereby grants to each Stockholder
the right to purchase, pro rata, all or any part of New Securities (as defined
in Section 3.1 below) which the Company may, from time to time, propose to
sell and issue. A pro rata portion, for purposes of this Agreement, is the
ratio of the number of shares of Common Stock held by such Stockholder
immediately prior to any purchase to the total number of shares of Common
Stock of the Company issued and outstanding at such time. Each Stockholder
shall have a right of over-allotment such that if any person fails to exercise
its right hereunder to purchase its pro rata portion of New Securities, the
other Stockholders may purchase the non-purchasing Stockholder's portion on a
pro rata basis within five (5) business days from the date it receives notice
from the Company that such person has failed to exercise its right hereunder
to purchase its pro rata share of New Securities.
3.1. For the purpose of this Section 3, "New Securities" shall mean
shares of Common Stock of the Company of any kind whether now or hereinafter
authorized, and rights, options or wan-ants to purchase such Common Stock, and
securities of any kind whatsoever that are, or may become, convertible into or
exchangeable for such Common Stock; provided, however, that the preemptive
right shall apply at the time of issuance of the right, warrant, option or
convertible or exchangeable security and not to the conversion, exchange or
exercise thereof, and provided, further, that the term "New Securities" shall
not include: (A) the securities of the Company issued pursuant to the terms of
the Subscription Agreements, the Purchase Agreement or the Stock Purchase
Agreement, (B) any Common Stock of the Company offered pursuant to a
registration statement which has been declared effective after the date hereof
under the Securities Act, whereby such securities shall be publicly traded on
a national securities exchange or quoted on the National Association of
Securities Dealers, Inc., Automatic Quotation System or National Market System
("NASDAQ) or otherwise broadly distributed to the general public (a "Qualified
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Public Offering"), (C) an issuance of Shares to a seller as consideration for
an acquisition by the Company of any other Person or all or substantially all
of the business and assets of any other Person or a division of any Person,
(D) shares of Common Stock of the Company or options to purchase such Common
Stock granted or to be granted in connection with the Stock Option Plan
(provided that such Shares in the aggregate may not exceed seventeen and one
half percent (17.5%) of the outstanding shares of the Common Stock of the
Company On a Fully Diluted Basis immediately after consummation of all
transactions contemplated by the Purchase Agreement and the Stock Purchase
Agreement) and (E) the issuance of Shares in connection with any debt or
preferred stock financing of the Company (provided that such Shares in the
aggregate issued in connection with such financings may not exceed five
percent (5%) of the outstanding shares of the Common Stock of the Company On a
Fully Diluted Basis immediately after the consummation of the transactions
contemplated by the Purchase Agreement and the Stock Purchase Agreement).
3.2. In the event the Company proposes to issue New Securities, it
shall give each Stockholder written notice of its intention, describing the
type of New Securities, the price and the general terms upon which the Company
proposes to issue the same. Each Stockholder shall have fifteen (15) business
days from the date of receipt of any such notice to agree to purchase a pro
rata share of such New Securities for the price and upon the general terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
3.3. In the event that the Stockholders fail to exercise their
preemptive rights with respect to all of the New Securities proposed to be
sold by the Company within said ten (10) business day period and after the
expiration of the five (5) business day period for the exercise of the
over-allotment provisions of this Section 3, the Company shall have one
hundred twenty (120) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within one hundred twenty (120) days from the date of said
agreement), to sell the New Securities respecting which the Stockholders'
rights were not exercised, at a price and upon general terms no more favorable
to the purchasers thereof than specified in the Company's notice. In the event
the Company has not sold such New Securities within said one hundred twenty
(120) day period (or sold and issued New Securities in accordance with the
foregoing within one hundred twenty (120) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Stockholders in the manner
provided above.
SECTION 4. Registration Right.
4.1. Piggyback Registration Rights.
4.1.1. Right to Piggyback. Subject to the last sentence of
this Section 4.1.1, whenever the Company proposes to register any
shares of Common Stock (or securities convertible into. or
exchangeable for, or options, warrants or other rights to acquire,
Common Stock) with the Securities and Exchange Commission (the
"Commission") under the Securities Act (other than registrations on
Form S-4 or Form S-8 or any successor or similar forms) and the
registration form to be used may be used for the registration of the
Registrable Securities (as defined in Section 4.10 below) (a
"Piggyback
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Registration"), the Company will give written notice to all
Stockholders, at least thirty (30) days prior to the anticipated
filing date, of its intention to effect such a registration, which
notice will specify the proposed offering price, the kind and number
of securities proposed to be registered, the distribution arrangements
and such other information that at the time would be appropriate to
include in such notice, and will, subject to Section 4.1.2 below,
include in such Piggyback Registration all Registrable Securities with
respect to which the Company has received written requests for
inclusion therein within ten (10) business days after the
effectiveness of the Company's notice. Except as may otherwise be
provided in this Agreement, Registrable Securities with respect to
which such request for registration has been received will be
registered by the Company and offered to the public in a Piggyback
Registration pursuant to this Section 4 on the terms and conditions at
least as favorable as those applicable to the registration of shares
of Common Stock (or securities convertible into or exchangeable or
exercisable for Common Stock) to be sold by the Company and by any
other person selling under such Piggyback Registration, provided that
if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason either not to register any or
to delay registration, of such securities, the Company may, at its
election, give written notice of such determination to each holder of
Common Stock and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Common
Stock in connection with such registration (but not from its
obligation to pay the registration expenses in connection therewith as
set forth in Section 4.5), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Common
Stock, for the same period as the delay in registering such other
securities.
4.1.2. Priority on Piggyback Registrations. If the managing
underwriter or underwriters, if any, advise the holders of Registrable
Securities in writing that in its or their reasonable opinion or, in
the case, of a Piggyback Registration not being. underwritten, the
Company shall reasonably determine (and notify the holders of
Registrable Securities of such determination), after consultation with
an investment banker of nationally recognized standing, that the
number or kind of securities proposed to be sold in such registration
(including Registrable Securities to be included pursuant to Section
4.1.1 above) will materially adversely affect the success of such
offering (including, without limitation, an impact on the selling
price), the Company will include in such registration the number of
securities, if any, which, in the opinion of such underwriter or
underwriters, or the Company, as the case may be, can be sold, as
follows: (i) first, the shares the Company proposes to sell, and (ii)
second, the Registrable Securities requested to be included in such
registration by the requesting Stockholders, pro rata among such
requesting Stockholders on the basis of their respective holdings of
Common Stock.
4.1.3. Selection of Underwriters. If any Piggyback
Registration is an underwritten offering, the Company (by action of
the Board of Directors) will select a managing underwriter or
underwriters to administer the offering, which managing underwriter or
underwriters will be of nationally recognized standing (which may be a
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Related Party of Bear Xxxxxxx) and reasonably acceptable to the
holders of a majority of the Registrable Securities included therein.
4.2. Demand Registration Rights.
4.2.1. Right to Demand Registration. (a) The Bear Xxxxxxx
Stockholders as a group (the "Bear Demanding Group") shall have the
right on any three occasions after the date hereof to make a written
request of the Company for registration with the Commission, under and
in accordance with the provisions of the Securities Act, of all or
part of their Registrable Securities (a "Demand Registration").
(b) Provided that (i) the Company has consummated a
Qualified Public Offering on or prior to May 3, 1999, (ii) the
Federated Option has been exercised in full and (iii) the sale by the
Federated Stockholders of the Common Stock then held by them is
restricted by the volume limitations Rule 144 promulgated under the
Securities Act, the Federated Stockholders as a group (the "Federated
Demanding Group") shall have the right on any one occasion after May
3, 1999 but on or before January 3, 2000 to make a written request of
the Company for a Demand Registration. Each of the Bear Demanding
Group and the Federated Demanding Group shall be a "Demanding Group".
(c) Notwithstanding any demand under subsections (a) and
(b) of this Section 4.2.1: (x) the Company need not effect a Demand
Registration unless such Demand Registration has been requested by
persons holding a least a majority of the Registrable Securities held
collectively by the relevant Demanding Group on the date of such
written request, (y) the Company may, if the Board of Directors
determines in the exercise of its reasonable judgment that due to a
pending or contemplated acquisition or disposition, to effect such
Demand Registration at such time would have a material adverse effect
on the Company, defer such Demand Registration for a single period not
to exceed one hundred eighty (180) days (but if the Company elects to
defer any Demand Registration pursuant to the terms of this sentence,
no Demand Registration shall be deemed to have occurred for purposes
of this Agreement) and (z) the Company shall be obligated to effect
only the number of Demand Registrations set forth in Section 4.2.2
below. Within ten (10) days after receipt of the request for a Demand
Registration, the Company will send written notice (the "Notice) of
such registration request and its intention to comply therewith to all
members of the relevant Demanding Group who are holders of Registrable
Securities and, subject to Section 4.2.3 below, the Company will
include in such registration all Registrable Securities of such
members of the relevant Demanding Group with respect to which the
Company has received written requests for inclusion therein within
twenty (20) business days after the effectiveness of the Notice. All
requests made pursuant to this Section 4.2.1 will specify the
aggregate number of Registrable Securities requested to be registered
and will also specify the intended methods of disposition thereof.
(d) The demand right of the Bear Demanding Group set forth
in Section 4.2.1(a) may not be exercised in respect of Registrable
Securities which have an estimated market value (upon consummation of
the demand registration) of less then $5.0 million in the aggregate.
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(e) The demand right of the Federated Demanding Group set
forth in Section 4.2.1(b) may not be exercised in respect of
Registrable Securities which constitute, in the aggregate, less than
one percent (1%) of the outstanding Common Stock upon the date of
exercise of such demand right.
4.2.2. Number of Demand Registrations. The Bear Demanding
Group shall be entitled to three (3) Demand Registrations, and,
subject to the satisfaction of the conditions described in Section
4.2.1 above, the Federated Demanding Group shall be entitled to one
(1) Demand Registration and the expenses of each (including the fees
and expenses of one counsel for the Demanding Group then exercising
its demand rights hereunder in accordance with Section 4.5.2 below)
shall be borne by the Company. A Demand Registration shall not be
counted as a Demand Registration hereunder until such Demand
Registration has been declared effective by the Commission and
maintained continuously effective for a period of at least three
months or such shorter period when all Registrable Securities included
therein have been sold in accordance with such Demand Registration. If
the Company elects to issue and sell any equity securities pursuant to
any Registration Statement filed in connection with a Demand
Registration, then such Registration shall be deemed not to be a
Demand Registration for purposes of determining the number of Demand
Registrations granted by this Agreement.
4.2.3. Priority on Demand Registrations. If in any Demand
Registration the managing underwriter or underwriters thereof (or in
the case of a Demand Registration not being underwritten, the holders
of a majority of the Registrable Securities held by the Demanding
Group then exercising its demand rights hereunder after consultation
with an investment banker of nationally recognized standing), advise
the Company in writing that in its or their reasonable opinion the
number of securities proposed to be sold in such Demand Registration
exceeds the number that can be sold in such offering without having a
material adverse effect on the success of the offering (including,
without limitation, an impact on the selling price), the Company will
include in such registration only the number of securities that, in
the reasonable opinion of such underwriter or underwriters (or such
holders of Registrable Securities held by the relevant Demanding
Group, as the case may be) can be sold without having a material
adverse effect on the success of the offering, as follows: (i) first,
the Registrable Securities requested to be included in such Demand
Registration by the requesting Stockholders, including the Demanding
Group, pro rata, among such Stockholders on the basis of their
respective holdings and (ii) second, shares to be issued and sold by
the Company or shares held by persons other than the Stockholders and
requested to be included in such Demand Registration (if any).
4.2.4. Selection of Underwriters. If a Demand Registration is
an underwritten offering, the holders of a majority of the Registrable
Securities to be included in such Demand Registration held by members
of the Demanding Group who then exercising its demand rights hereunder
will select a managing underwriter or underwriters of recognized
national standing (which may be a Related Party of Bear Xxxxxxx) to
administer the offering.
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4.3. Registration Procedures. With respect to any Piggyback
Registration or Demand Registration (generically, a "Registration"), the
Company will, subject to Sections 4.1.2 and 4.2.3 as expeditiously as
practicable:
4.3.1. prepare and file with the Commission, within 60 days
after mailing the applicable Notice, a registration statement or
registration statements (the "Registration Statement") relating to the
applicable Registration on any appropriate form under the Securities
Act, which form shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of
distribution thereof; provided that the Company will include in any
Registration Statement on a form other than Form S-1 all information
that the holders of the Registrable Securities so to be registered
shall reasonably request and shall include all financial statements
required by the Commission to be filed therewith, cooperate and assist
in any filings required to be made with the National Association of
Securities Dealers, Inc. ("NASD"), and use its best efforts to cause
such Registration Statement to become effective; provided further that
before filing a Registration Statement or prospectus related thereto
(a "Prospectus") or any amendments or supplements thereto, the Company
will furnish to the holders of the Registrable Securities covered by
such Registration Statement and the underwriters, if any, copies of
all such documents proposed to be filed, which documents will be
subject to the reasonable review of such holders and underwriters and
their respective counsel, and the Company will not file any
Registration Statement or amendment thereto or any Prospectus or any
supplement thereto to which the holders of a majority of the
Registrable Securities covered by such Registration Statement or the
underwriters, if any, shall reasonably object;
4.3.2. prepare and file with the Commission such amendments
and post-effective amendments to the Registration Statement as may be
necessary to keep each Registration Statement effective for the
applicable period, or such shorter period which will terminate when
all Registrable Securities covered by such Registration Statement have
been sold; cause each Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act; and to comply fully with Rules 424,
430A and 462, as applicable, under the Securities Act in a timely
manner; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof
set forth in such Registration Statement or supplement to the
Prospectus; the Company shall not be deemed to have used its best
efforts to keep a Registration Statement effective during the
applicable period if it voluntarily takes any action that would result
in selling holders of the Registrable Securities covered thereby not
being able to sell such Registrable Securities during that period
unless such action is required under applicable law, provided that the
foregoing shall not apply to actions taken by the Company in good
faith and for valid business reasons, including without limitation the
acquisition or divestiture of assets, so long as the Company promptly
thereafter complies with the requirements of Section 4.3.11, if
applicable;
4.3.3. notify the selling holders of Registrable Securities
and the managing underwriters, if any, promptly, and (if requested by
any such person or entity) confirm
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such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment,
when the same has become effective, (B) of any request by the
Commission for amendments or supplements to the Registration Statement
or the Prospectus or for additional information, (C) of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for
that purpose, (D) if at any time the representations and warranties of
the Company contemplated by Section 4.3.14 below cease to be true and
correct, (E) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (F) of the
happening of any event which makes any statement made in the
Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any
changes in the Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the statements
therein not misleading;
4.3.4. make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
4.3.5. if requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in
connection with an underwritten offering, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as
the managing underwriters and the holders of a majority of the
Registrable Securities being sold agree should be included therein
relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to
the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and with
respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in
such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment;
4.3.6. furnish to each selling holder of Registrable
Securities and each managing underwriter, without charge, at least one
signed copy of the Registration Statement, as first filed with the
Commission, and any amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference);
4.3.7. deliver to each selling holder of Registrable
Securities and the underwriters, if any, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such selling holder of
Registrable Securities and underwriters may reasonably request; the
Company consents to the use of each Prospectus or any amendment or
supplement thereto by each of the selling holders of Registrable
Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
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4.3.8. prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of
Registrable Securities, the underwriters, if any, and their respective
counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or
"blue sky" laws of such jurisdictions as any seller or underwriter
reasonably requests in writing, considering the amount of Registrable
Securities proposed to be sold in each such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statement; provided that the Company will
not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action
that would subject it to general service of process or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any such jurisdiction where it is not then so subject;
4.3.9. cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive
legends and to be in such denominations and registered in such names
as the underwriters may request at least two business days prior to
any sale of Registrable Securities to the underwriters;
4.3.10. use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
4.3.11. upon the occurrence of any event contemplated by
Section 4.3.3(F) above, prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or
any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
4.3.12. cause all Registrable Securities covered by any
Registration Statement to be listed on each securities exchange on
which similar securities issued by the Company are then listed, or
cause such Registrable Securities to be authorized for trading on the
NASDAQ National Market System if any similar securities issued by the
Company are then so authorized, if requested by the holders of a
majority of such Registrable Securities or the managing underwriters,
if any;
4.3.13. provide a CUSIP number for all Registrable Securities,
not later than the effective date of the applicable Registration
Statement;
4.3.14. enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting
agreement is entered into and whether or not the Registration is an
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underwritten Registration (A) make such representations and warranties
to the holders of such Registrable Securities and the underwriters, if
any, in form, substance and scope as are customarily made by issuers
to underwriters in primary underwritten offerings; (B) obtain opinions
of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of
a majority of the Registrable Securities being sold) addressed to each
selling holder and the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by such holders
and underwriters; (C) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public accountants
addressed to the selling holders of. Registrable Securities and the
underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters by underwriters in connection with primary underwritten
offerings; (D) if an underwriting agreement is entered into, the same
shall set forth in full the indemnification provisions and procedures
set forth in Section 4.6 below with respect to all parties to be
indemnified pursuant to said Section 4.6; and (E) the Company shall
deliver such documents and certificates as may be requested by the
holders of a majority of the Registrable Securities being sold and the
managing underwriters, if any, to evidence compliance with Section
4.3.3(F) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent required thereunder;
4.3.15. make available for inspection by a representative of
the holders of a majority of the Registrable Securities, any
underwriter participating in any disposition pursuant to such
Registration, and any attorney or accountant retained by the sellers
or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement; provided
that any records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential by such
Persons unless disclosure of such records, information or documents is
required by court or administrative order or any regulatory body
having jurisdiction;
4.3.16. otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve (12)-month period (or
ninety (90) days, if such period is a fiscal year) (A) commencing at
the end of any fiscal quarter in which Registrable Securities are sold
to underwriters in a firm or best efforts underwritten offering, or
(B) if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing after
the effective date of the Registration Statement, which statements
shall cover said twelve (12)-month periods;
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4.3.17. promptly prior to the filing of any document that is to
be incorporated by reference into any Registration Statement or
Prospectus (after initial filing of the Registration Statement),
provide copies of such document to the selling holders of Registrable
Securities and to the managing underwriters, if any, make the
Company's representatives available for discussion of such document
and other customary due diligence matters and make such changes in
such document prior to the filing thereof as such selling holders or
underwriters may reasonably request;
4.3.18. provide promptly to each selling holder of Registrable
Securities and the underwriter, if any, upon request, each document
filed with the Commission pursuant to the requirements of Section 13
or Section 15(d) of the Exchange Act; and
4.3.19. take such other action that may be requested by a seller
of Common Stock that are customary and reasonably required in connection
with the sale of Registrable Securities to which the Registration is
being effected, including, in, the case of an underwritten offering,
cause the Company's executive officers, including its chief executive
officer and chief financial officer, to be available to meet with
potential investors and to participate in any "roadshow" requested by
the underwriters and which in the underwriters' judgment is reasonably
necessary or appropriate for the sale of the Registrable Securities as
to which the Registration is being effected.
The Company may require each seller of Registrable Securities as to
which any Registration is being effected to famish to the Company such
information regarding the proposed distribution of such securities as the
Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4.3.3(F) such
holder will forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement until such holder's receipt of copies
of the supplemented or amended Prospectus as contemplated by Section 4.3.11,
or until it is advised in writing (the "Advice") by the Company that the use
of the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus,
and, if so directed by the Company, such holder will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then
in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the time periods referred to in Section
4.3.2 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 4.3.11 or the Advice.
4.4. Restrictions on Public Sale.
4.4.1. Public Sale by Holders of Registrable Securities. To
the extent not inconsistent with applicable law, each Stockholder, if
requested by the managing underwriter or underwriters for any such
Registration, agrees not to sell, make any short
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sale of, loan, grant any option for the purchase of, effect any public
sale or distribution of or otherwise dispose of any Common Stock (or
securities convertible into or exchangeable or exercisable for Common
Stock), including a sale pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act, in violation of
Regulation M or during the 15 business days prior to, and during the
one hundred eighty (180)-day period (or such shorter period as may be
agreed to by such holders) beginning on, the effective date of the
applicable Registration Statement (except as part of such
Registration).
4.4.2. Public Sale by the Company and Others. If requested by
the managing underwriter or underwriters for any underwritten
Registration, (i) whether or not it participates in such Registration,
the Company will not sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of
or otherwise dispose of any Common Stock (or securities convertible
into or exchangeable or exercisable for Common Stock) in violation of
Regulation M or during the fifteen (15) business days prior to, and
during the one hundred eighty (180) day period beginning on the
effective date of such Registration and (ii) the Company will cause
each holder of Common Stock (or securities convertible into or
exchangeable or exercisable for Common Stock) purchased from the
Company or pursuant to the Federated Option at any time after the date
of this Agreement (other than in a registered public offering)
including without limitation Federated in respect of the Common Stock
subject to the Federated Option (whether or not the Federated Option
has been exercised) to agree not to sell, make any short sale of,
loan, grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of any such securities during
such period described in clause (i) above (except as part of such
Registration, if otherwise permitted) whether or not such holder has
participated in the Registration.
4.4.3. Other Registrations. If the Company has previously
filed a Registration Statement with respect to Registrable Securities,
and if such previous Registration has not been withdrawn or abandoned,
the Company will not file or cause to be effected any other
registration of any of its Common Stock (or securities convertible
into or exchangeable or exercisable for Common Stock) under the
Securities Act (except on Form S-8 or any similar successor form),
whether on its own behalf or at the request of any holder or holders
of Common Stock (or securities convertible into or exchangeable or
exercisable for Common Stock), until a period of at least three (3)
months has elapsed from the effective date of such previous
Registration; provided, that if the holders of fifty percent (50%) or
more of the aggregate number of Registrable Securities included in
such previous Registration shall agree in writing, such period may be
shortened to a period specified by such holders.
4.5. Registration Expenses.
4.5.1. All expenses incident to the Company's performance of
or compliance, with this Agreement will be borne by the Company,
including, without limitation, all registration and filing fees, the
fees and expenses of the counsel and accountants for the Company
(including the expenses of any "cold comfort" letters and special.,
audits required by or incident to the performance of such persons),
all other costs and expenses
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of the Company incident to the preparation, printing and filing under
the Securities Act of the Registration Statement (and all amendments
and supplements thereto) and furnishing copies thereof and of the
Prospectus included therein, the costs and expenses incurred by the
Company in connection with the qualification of the Registrable
Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required
to be made with the NASD (including, if applicable, the fees and
expenses of any "qualified independent underwriter" and its counsel as
may be required by the rules and regulations of the NASD), the costs
and expenses of listing the Registrable Securities for trading on a
national securities exchange or authorizing them for trading on NASDAQ
and all other costs and expenses incurred by the Company in connection
with any Registration hereunder; provided that, except as otherwise
provided in Section 4.5.2, each Stockholder shall bear the costs and
expenses of any underwriters' commissions, brokerage fees or transfer
taxes relating to the Registrable Securities sold by such Stockholders
and the fees and expenses of any counsel, accountants or other
representative retained by Stockholder.
4.5.2. Notwithstanding the foregoing and except as provided
below, in connection with each Registration hereunder, the Company
will reimburse the Stockholders who are holders of Registrable
Securities being registered in any Registration hereunder for (i) the
reasonable fees and disbursements of not more than one counsel, which
counsel shall be chosen (x) by the holders of a majority of the
Registrable Securities to be included therein that are held by the
Demanding Group in respect of such registration in the case of a
Demand Registration and (y) otherwise, by the holders of a majority of
all Registrable Securities to be included therein, and (ii) the
reasonable out-of-pocket expenses of the holders of Registrable
Securities in connection with such Registration, including travel
costs (if any).
4.6. Indemnification.
4.6.1. Indemnification by the Company. The Company agrees to
indemnify, to the full extent permitted by law, each Stockholder, its
officers, directors, partners and agents and each person who controls
such Stockholder (within the meaning of the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act)),
against all losses, claims, damages, liabilities and expenses caused
by any untrue or alleged untrue, statement of a material fact
contained in any Registration Statement, Prospectus or preliminary
Prospectus or any omission or alleged omission to state therein a
material fact necessary to make the statements therein (in the case of
a Prospectus or any preliminary Prospectus, in light of the
circumstances under which they were made) not misleading, except
insofar as the same are caused by or contained in any information with
respect to such Stockholder furnished in writing to the Company by
such Stockholder or its representative expressly for use therein. The
Company will also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals participating
in the distribution, their officers and directors and each person who
controls such persons (within the meaning of the Securities Act) to
the same extent as provided above with respect to the indemnification
of the holders of Registrable Securities; provided, however, if
pursuant to an underwritten public offering of Registrable Securities,
the Company and any underwriters enter into an underwriting or
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purchase agreement relating to such offering that contains provisions
relating to indemnification and contribution between the Company and
such underwriters, such provisions shall be deemed to govern
indemnification and contribution as between the Company and such
underwriters.
4.6.2. Indemnification by Holders of Registrable Securities.
In connection with any Registration in which a Stockholder is
participating, each such Stockholder will furnish to the Company in
writing such information with respect to such Stockholder as the
Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify, to the
full extent permitted by law, the Company, the directors and officers
of the Company signing the Registration Statement and each person who
controls the Company (within the meaning of the Securities Act and the
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or
necessary to make the statements in the Registration Statement or
Prospectus or preliminary Prospectus (in the case of the Prospectus or
any preliminary Prospectus, in light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in any information
with respect to such Stockholder so furnished in writing by such
Stockholder or its representative specifically for inclusion therein.
In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of
the proceeds received by such holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company
shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided
above with respect to information with respect to such persons or
entities so furnished in writing by such persons or entities or their
representatives specifically for inclusion in any Prospectus or
Registration Statement.
4.6.3. Conduct of Indemnification Proceedings. Any person or
entity entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party after the receipt by the
indemnified party of a written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof made in
writing for which such indemnified party will claim indemnification or
contribution pursuant to this Agreement; provided, however, that the
failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under
Sections 4.6.1 and 4.6.2, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice and (ii)
unless in such indemnified party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties
with respect to such claim, permit such indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Whether or not such defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). No indemnifying party will
consent to the entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the
claimant or plaintiff. to such indemnified party of an unconditional
release from all liability in respect of such claim or litigation. An
indemnifying party who is not
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entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel in
any one jurisdiction for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of
any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or
counsels.
4.6.4. Contribution. If for any reason the indemnification
provided for in Sections 4.6.1 and 4.6.2 is unavailable to an
indemnified party as contemplated by Sections 4.6.1 and 4.6.2, then
the indemnifying party in lieu of indemnification shall contribute to
the amount paid or payable by the indemnified party as a result of
such expense, loss, claim, damage or liability. In determining the
amount of contribution to which an indemnified party is entitled,
there shall be considered such indemnified party's relative knowledge
and access to information concerning the matter with respect to which
the claim was asserted, the opportunity to correct and prevent any
statement or omission, and other equitable considerations appropriate
under the circumstances. It is hereby agreed that it would not
necessarily be equitable if the amount of such contribution were
determined by pro rata or per capita allocation. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person
who was not found guilty of such fraudulent misrepresentation.
4.7. Rule 144. The Company, agrees that at all times after it has
filed a registration statement pursuant to the requirements of the Securities
Act relating to any class of equity securities of the Company, it will file in
a timely manner all reports required to be filed by it pursuant to the
Securities Act and the Exchange Act and will take such further action as any
holder of Registrable Securities may reasonably request in order that such
holder may effect sales of Common Stock pursuant to Rule 144. At any
reasonable time and upon request of any Stockholder, the Company will furnish
such Stockholder and others with such information as may be necessary to
enable the Stockholder to effect sales of Common Stock pursuant to Rule 144
under the Securities Act and will deliver to such Stockholder a written
statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
4.8. Participation in Underwritten Registrations. No Stockholder may
participate in any underwritten Registration hereunder unless such Stockholder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to select
the underwriter pursuant to Sections 4.1.3 and 4.2.4, and (ii) accurately
completes in a timely manner and executes all questionnaires, powers of
attorney, underwriting agreements and other documents customarily required
under the terms of underwriting arrangements.
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4.9. Other Registration Rights. The Company will not grant to any
person (including the Stockholders) any demand or piggyback registration
rights with respect to any capital stock of the Company including, without
limitation, the Shares other than piggyback registration rights that are not
inconsistent with the terms of this Section 4. To the extent that the Company
grants to any person registration rights with respect to any securities of the
Company having provisions more favorable to the holders thereof than the
provisions contained in this Agreement, the Company will confer comparable
rights to the holders of Registrable Securities under this Agreement.
4.10. Definition of Registrable Securities. "Registrable Securities"
means the shares of Common Stock now owned or hereafter acquired by any
Stockholder, but with respect to any share, only until such time as such share
(i) has been effectively registered under the Securities Act and disposed of
in accordance with the Registration Statement covering it or (ii) has been
sold to the public pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act and the Legend referred to in Section 7.1 has
been removed from the certificate representing such share.
SECTION 5. Governance.
5.1. Initial Board. On the date hereof, the initial Board of
Directors of the Company shall consist of the following members: Xxxxxx
Xxxxxx, Xxxxx Xxxxxxx, Xxxx Xxxxx, Xxxx X. Xxxxxx, Xxxxx X. Xxxxxxxx and
Xxxxxx X. Xxxxxxx (collectively, the "Initial Directors") and three seats
shall be vacant. All Stockholders holding voting Common Stock agree to vote or
execute a written consent to effect the election of such Initial Directors to
take office immediately upon execution hereof.
5.2. Size and Composition of Board. Until amended in. accordance
with Section 5.6 below, the Company's Board of Directors shall at all times be
composed of no more than nine (9) directors, and the Company and each
Stockholder hereby agrees to take, at any time and from time to time, all
action necessary (including, without limitation, voting the shares of the
Company's voting Common Stock owned or controlled by such Stockholder, calling
special meetings of stockholders and executing and delivering written
consents) such that:
5.2.1. if and for so long as the Bear Xxxxxxx Parties
collectively own 25,000 or more shares of voting Common Stock, five
(5) members of the Board of Directors shall at all times be persons
designated by holders of a majority of the voting Common Stock owned
by the Bear Xxxxxxx Parties;
5.2.2. if and for so long as the Management Parties
collectively own 15,000 or more shares of voting Common Stock, three
(3) members of the Board of Directors shall at all times be persons
designated by holders of a majority of the voting Common Stock owned
by the Management Parties;
5.2.3. if and for so long as the Bear Xxxxxxx Parties have the
right to appoint four or more members of the Board of Directors, in
addition to any directors designated by the Bear Xxxxxxx Parties and
the Management Parties, one (1) member of the Board of Directors shall
at all times be a person who is not an employee, director or officer
of the
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Bear Xxxxxxx Parties but shall be designated by holders of a majority
of the voting Common Stock held by the Bear Xxxxxxx Parties subject to
the approval of holders of a majority of the voting Common Stock owned
by the Management Parties, such approval not to be unreasonably
withheld or delayed;
5.2.4. if and for so long as the Bear Xxxxxxx Parties
collectively own at least 20,000 shares of voting Common Stock, but
less than 25,000 shares of voting Common Stock, four (4) members of
the Board of Directors shall at all times be persons designated by
holders of a majority of the voting Common Stock owned by the Bear
Xxxxxxx Parties;
5.2.5. if and for so long as the Bear Xxxxxxx Parties
collectively own at least 15,000 shares of voting Common Stock, but
less than 20,000 shares of voting Common Stock, three (3) members of
the Board of Directors shall at all times be persons designated by
holders of a majority of the voting Common Stock owned by the Bear
Xxxxxxx Parties;
5.2.6. if and for so long as the Bear Xxxxxxx Parties
collectively own at least 10,000 shares of voting Common Stock but
less than 15,000 shares of voting Common Stock, two (2) members of the
Board of Directors shall at all times be persons designated by holders
of a majority of the voting Common Stock owned by the Bear Xxxxxxx
Parties;
5.2.7. if and for so long as the Management Parties
collectively own at least 10,000 shares of voting Common Stock but
less than 15,000 shares of voting Common Stock, two (2) members of the
Board of Directors shall at all times be persons designated by holders
of a majority of the voting Common Stock held by the Management
Parties;
5.2.8. if and for so long as the Bear Xxxxxxx Parties do not
otherwise have any rights to designate any member of the Board of
Directors hereunder but the Bear Xxxxxxx Parties collectively own
5,000 or more shares of voting Common Stock, one (1) member of the
Board of Directors shall be a person designated by holders of a
majority of the voting Common Stock owned by the Bear Xxxxxxx Parties.
Notwithstanding the foregoing, the rights of the Bear Xxxxxxx Parties
set forth in this Section 5.2.8 shall terminate upon the later to
occur of. (i) the first Qualified Public Offering of Common Stock; and
(ii) the rights of the Management Parties under Section 5.2.9
terminating, irrespective of the number of shares of voting Common
Stock then owned by the Bear Xxxxxxx Parties; and
5.2.9. if and for so long as the Management Parties do not
otherwise have any rights to designate any member of the Board of
Directors hereunder, but the Management Parties collectively own 5,000
or more shares of voting Common Stock (including, for the purpose of
this Section 5.2.9 only, voting Common Stock then owned by Management
whether or not they are then employees of the Company), one (1) member
of the Board of Directors shall be a person designated by holders of a
majority of the voting Common Stock owned by the Management Parties
(including voting Common Stock then owned by Management whether or not
they are then employees of the Company). Notwithstanding the
foregoing, the rights of the Management Parties set forth in this
Section 5.2.9 shall terminate upon the occurrence of the first
Qualified Public
-26-
Offering of Common Stock, irrespective of the number of shares of
voting Common Stock then owned by the Management Parties provided
however that, if following such Qualified Public Offering Xxxxxx
Xxxxxx and his Related Parties (excluding any Shares owned by any
other persons in any voting trust) collectively own 5,000 or more
shares of voting Common Stock, and Xx. Xxxxxx is the Chief Executive
Officer of the Company, the rights of the Management Parties in this
Section 5.2.9 shall not terminate until the earlier to occur of. (i)
Xx. Xxxxxx and such Related Parties collectively owning less than
5,000 shares of voting Common Stock; and (ii) Xx. Xxxxxx ceasing to be
the Chief Executive Officer of the Company.
The number of shares of Common Stock referred to in each Subsection of
this Section 5.2 and in Section 5.6 shall be adjusted as determined by the
Board of Directors upon any Stock Adjustment to reflect such Stock Adjustment.
5.3. Removal, Replacement. No director designated pursuant to
Section 5.2 may be removed except by the holders of a majority of the shares
of voting Common Stock entitled to nominate and appoint such director in
accordance with Section 5.2, and each Stockholder hereby agrees to take all
action necessary (including, without limitation, voting the shares of the
Company's voting Common Stock owned or controlled by such Stockholder, calling
special meetings of stockholders and executing and delivering written
consents) for the purpose of accomplishing the foregoing. Immediately upon any
Stockholder no longer being entitled to appoint one or more Director(s), such
Director(s) shall resign or be removed from the Board by the relevant
Stockholders. With respect to the vacancies on the Board of Directors
referenced in Section 5. 1, or if a vacancy on the Board occurs by reason of
the death, removal, resignation, retirement or election not to serve of a
designee, the remaining directors and the Company shall cause the vacancy
thereby created to be filled by a new designee as soon as possible, who is
designated in the manner and by the persons specified in Section 5.2 and the
Company and each Stockholder hereby agrees to take, at any time and from time
to time, all actions necessary to accomplish the same; provided, however, that
if any group fails to designate a representative in accordance with Section
5.2 above for a period of thirty (30) consecutive days, then such vacancy
shall be filled by a vote of all of the shareholders of the Company holding
voting Common Stock until such time as the board member is designated in
accordance with Section 5.2.
5.4. Insurance. In addition to any compensation to which the members
of the Board of Directors may be entitled, the Company shall obtain and
maintain at all during which this Agreement remains in effect, at the cost and
expense of the Company, director liability insurance policies covering each
member of the Board of Directors. Such director liability insurance policies
shall be provided by a reputable nationally recognized insurance carrier and
shall provide coverage in such amounts and on such terms as may be reasonably
acceptable to each member of the Board of Directors.
5.5. Board Approvals. In addition to any vote or consent of the
Board of Directors or the stockholders of the Company required by law or the
Amended and Restated Certificate of Incorporation, the affirmative vote of a
majority of the members of the Board of Directors shall be necessary for
authorizing, effecting or validating:
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(i) the approval of any annual budget or business plan for
the Company or any Subsidiary of the Company or the deviation by the
Company or any such Subsidiary from any annual budget for the Company
or such Subsidiary approved by the Board of Directors by more than ten
percent (10%);
(ii) any capital expenditure or expenditures by the Company
or any Subsidiary of the Company which, individually or in the
aggregate, exceeds $250,000 except for any such capital expenditures
which are identified and approved in the annual budget referred to in
(i) above;
(iii) the hiring or termination by the Company or any
Subsidiary of the Company of any officer or senior management employee
of the Company or such Subsidiary or any material change in the terms
of employment (including compensation) of any of the foregoing;
(iv) redemption, purchase, or other acquisition of any
capital stock of the Company other than pursuant to an employment
agreement with Management;
(v) authorization or issuance of any equity security;
(vi) any amendment, modification or repeal of the Company's
Amended and Restated Certificate of Incorporation;
(vii) any merger or consolidation of the Company into or with
another corporation, or any sale, lease, exchange, or other conveyance
of all or substantially all the assets of the Company;
(viii) declaration or distribution of any dividend on any
series of capital stock of the Company other than dividends on the
Series A or Series B Preferred Stock;
(ix) increase in the number of shares that the Company is
authorized to issue under the Stock Option Plan or establishment of or
increase in the number of shares that the Company is authorized to
issue under any similar or successor plan or any restricted stock,
stock option or similar plan; or
(x) any transaction, contract, agreement, loan, advance
(other than ordinary business expenses) or guarantee ("Transaction")
entered into by the Company or any of its Subsidiaries with or for the
benefit of the Management Parties or any Federated Stockholder or any
of their respective Related Parties except for Transactions entered
into with Federated pursuant to the Sourcing Agreement between
Federated and the Company dated as of July 31, 1998, as the same may
be amended from time to time.
5.6. Certain Approvals. In addition to any vote or consent of the
Board of Directors or the stockholders of the Company or required by law or
the Amended and Restated Certificate of Incorporation, until the Bear Xxxxxxx
Parties own less than 25,000 shares of voting Common Stock (adjusted as
described in Section 5.2) the affirmative vote of a majority of the members of
the Board of Directors, including, the affirmative vote of a director of the
Company designated by the Bear Xxxxxxx Parties and the affirmative vote of a
director of the Company designated by
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the Management Parties (who shall be Xxxxxx Xxxxxx if he is then a director of
the Company) in the case of (i) below and the affirmative vote of an
independent director appointed pursuant to Section 5.2.3 (if any) in the case
of (ii), (iii), (iv) or (v), shall be necessary for authorizing, effecting or
validating:
(i) any increase or decrease in the size of the Board of
Directors (other than as described in Section 5.9 below);
(ii) any redemption or repurchase by the Company of any
Common Stock held by the Bear Xxxxxxx Stockholders;
(iii) any redemption or repurchase by the Company of, or
payment of dividends on, any shares of Series B Preferred Stock held
by the Bear Xxxxxxx Stockholders in circumstances where redemption,
repurchase or such payment of dividends is not permitted by the
Company's Amended and Restated Certificate of Incorporation (as the
same may be amended from time to time). It is expressly agreed that
neither (a) payment of accrued dividends on the Series B Preferred
Stock nor (b) redemption or repurchase of any shares of Series B
Preferred Stock following any election by the Series B Majority
Holders to demand redemption of any shares of Series B Preferred Stock
pursuant to the Amended and Restated Certificate of Incorporation of
the Company shall require any consent hereunder,
(iv) any Transaction, entered into by the Company or any of
its Subsidiaries, with or for the benefit of any Bear Xxxxxxx
Stockholder or any Related Party of any Bear Xxxxxxx Stockholder
unless: (a) such Transaction is on terms no less favorable to the
Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person; or (b) such Transaction is pursuant to the
Management Services Agreement between the Company and Bear Xxxxxxx
dated as of the date hereof as the same may be amended from time to
time (the "Management Services Agreement"); or
(v) any material amendment to the Management Services
Agreement.
This Section 5.6 shall terminate on the earlier to occur of. (a) Bear
Xxxxxxx ceasing to own 25,000 or more shares of voting Common Stock (adjusted
as described in Section 5.2), and (b) the Management Parties ceasing to have
the right to designate one or more members of the Board of Directors of the
Company under Section 5.2.
5.7. Board Meetings. From the date hereof until the first (1st)
anniversary of this Agreement, the Board of Directors shall hold regularly
scheduled meetings no less frequently than on a monthly basis. Thereafter, the
frequency of such meetings shall be determined by majority vote of the Board
of Directors; provided, however, that during the term of this Agreement
regularly scheduled meetings of the Board of Directors shall be held no less
frequently than once per calendar quarter.
5.8. Amended and Restated Certificate of Incorporation and By-Laws.
Promptly following Closing, the Stockholders agree to adopt such amendments to
the Company's Amended and Restated Certificate of Incorporation and By-Laws as
are, in the opinion of a
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majority of the Board of Directors, reasonably necessary to give effect to the
provisions of this Section 5.
5.9. Public Offering. In connection with any public offering of
Shares, or the listing of Shares on any national securities exchange or
NASDAQ, the Board of Directors shall vote to increase the size of the Board of
Directors to permit the appointment of two independent directors of the
Company and, if the Bear Xxxxxxx Parties then own 25,000 or more shares of
Common Stock, the number of members of the Board of Directors which may be
designated by the Bear Xxxxxxx Parties pursuant to Section 5.2.1 shall be
increased to such number as would give the Bear Xxxxxxx Parties the right to
designate a majority of the members of the Board of Directors following the
appointment of independent directors pursuant to this Section 5.9.
SECTION 6. Termination.
The provisions of Sections 2 and 3 of this Agreement shall terminate
upon the earlier of (i) the consummation of the first underwritten Qualified
Public Offering of Common Stock in which the Company has received net proceeds
of at least $20 million (measured as of the date of issuance) and (ii) the
consummation of any Approved Sale.
SECTION 7. Miscellaneous.
7.1. Legend. The certificates representing the capital stock of the
Company held by each of the Stockholders shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES OR SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND ANY SIMILAR REQUIREMENTS OF ANY
APPLICABLE STATE SECURITIES LAW., THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN, RESTRICTIONS SET FORTH IN A
STOCKHOLDERS AGREEMENT DATED AS OF AUGUST 3, 1998, A COPY OF WHICH IS
AVAILABLE UPON REQUEST FROM THE SECRETARY OF THE COMPANY."
If any capital stock of the Company becomes eligible for sale pursuant
to Rule 144(k) promulgated under the Securities Act, the Company shall, upon
the request of any holder of such capital stock, remove the legend set forth
in this Section 7.1 from the certificates evidencing the shares of such
capital sock held by such holder. In addition, (i) in connection with any
Transfer of shares of any capital stock of the Company pursuant to any public
offering registered under the Securities Act or pursuant to Rule 144 or Rule
144A (or any similar rule or rules then in effect promulgated under the
Securities Act) if such rule is available or (ii) if the holder of any shares
of capital stock of the Company delivers to the Company an opinion of counsel
reasonably acceptable to the Company that no subsequent Transfer of such
shares shall require
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registration under the Securities Act, the Company shall promptly upon such
Transfer deliver new certificates for such shares which do not bear the legend
set forth in this Section 7.1.
7.2. Successors, Assigns and Transferees. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their respective
legal representatives, heirs, legatees, successors and assigns (including any
party to which any Stockholder has Transferred Shares if such party is
required under Section 2 to become bound hereby). The Company covenants and
agrees that it will not issue any equity securities to any person (other than
pursuant to an effective Registration Statement) unless such person, prior to
such issuance, agrees in writing to be bound by this Agreement, as amended or
modified prior to the date of such issuance, to the same extent and in the
same manner as the other parties hereto. Each such supplementary agreement
shall become effective upon its execution by the Company and such person
acquiring such equity securities, and it shall not require the signatures or
the consent of any other party hereto. Upon such execution such person shall
be bound by all the restrictions placed on the Stockholders by this Agreement
and all actions taken by the Stockholders and the Company pursuant to this
Agreement prior to the execution of such supplementary agreement, shall be
subject to any additional restrictions set forth in such supplementary
agreement and shall enjoy only such rights as are specifically set forth in
such supplementary agreement. Notwithstanding anything to the contrary set
forth herein, Shares sold to the public pursuant to an effective Registration
Statement shall no longer be subject to any of the provisions of this
Agreement.
7.3. Specific Performance, Etc. The Company and each Stockholder, in
addition to being entitled to exercise all rights provided herein, in the
Company's Amended and Restated Certificate of Incorporation or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
7.4. Governing Law. This Agreement shall be governed by and
construed in Accordance with the internal law of the State of New York.
7.5. Interpretation. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect the meaning or interpretation of
this Agreement.
7.6. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, or sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three (3) business days after the date of deposit
in the United States mail, by certified mail return receipt requested, as
follows:
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7.6.1. If to the Company to:
Specialty Acquisition Corporation
00 Xxxx Xxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
with copies (which shall not constitute notice) to:
Xxxxxxxx & Xxxxx
000 00xx Xxxxxx X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
and to
Xxxxxx & Xxxxxxx
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, X.X. 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
7.6.2. If to Bear Xxxxxxx, to:
MSS Acquisition Corp. II
c/o Bear, Xxxxxxx & Co. Inc.
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, X.X. 00000
Attention: Xxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxx & Xxxxxxx
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, X.X. 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
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7.6.3. If to Federated, to:
c/o Federated Department Stores, Inc.
0 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000,
Attention: General Counsel
Facsimile No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxx Day Xxxxxx & Xxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
7.6.4. If to Management, to:
Specialty Acquisition Corporation
00 Xxxx Xxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxxx & Xxxxx
000 00xx Xxxxxx X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
7.7. Inspection and Compliance with Law. Copies of this Agreement
will be available for inspection or copying by any Stockholder at the offices
of the Company through the Secretary of the Company.
7.8. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this Section 7.8, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
-hereof may not be given, except by a written instrument executed by (i) the
Company, (ii) the holders of a majority of the Bear Xxxxxxx Shares and (iii)
the holders of a majority of the Management Shares; provided that no
authorization, modification, supplement, waiver, consent or departure from the
provisions hereof which adversely affects the rights or obligations of the
Federated Stockholders, in their capacity as Stockholders, shall be given
without the additional prior written consent of holders of a majority of the
Federated Shares. No action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as waiver of any preceding or succeeding
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breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
7.9. Transfers Void. Any Transfer of any security of the Company in
violation of this Agreement shall be null and void and the Company covenants
and agrees that it will not register or otherwise recognize a Transfer
(whether for the purposes of shareholder voting or in connection with the
distribution of dividends or other corporate assets) of any securities which
it has reason to believe was effected in violation of this Agreement.
7.10. Counterparts. This Agreement may be executed in one or more
counterparts, by the original parties hereto and any successor in interest,
each of which shall be deemed to be an original and all of which together
shall be deemed to constitute one and the same agreement.
7.11. Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to, any other available remedy.
7.12. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby.
7.13. Federated. Notwithstanding that Federated is a "Stockholder"
for the purposes of being subject to this Agreement, Federated shall not be
deemed to hold or own any shares of Common Stock subject to the Federated
Option until Federated has exercised the Federated Option in respect of such
shares of Common Stock in accordance with the terms of the Federated Option,
including without limitation, paying the Option Price for such shares of
Common Stock.
7.14. Redesignation of Voting Common Stock. Promptly following the
date hereof, the parties shall take such action necessary to create a class of
Common Stock of the Company having the same rights, powers and restrictions as
the voting Common Stock of the Company but which shall not, until the
consummation of a Qualified Public Offering, have the right to vote on any
matters to be voted on by the stockholders of the Company. All of the Shares
issuable pursuant to the Stock Option Plan shall be such non-voting Common
Stock and any shares of voting Common Stock (or options exercisable for voting
Common Stock) issued prior to the creation of the non-voting Common Stock
under the Stock Option Plan shall be exchanged for shares (or options
exercisable for shares) of non-voting Common Stock. Each Stockholder shall, in
addition, have the right, exerciseable by such Stockholder at its discretion,
to require that the Company exchange some or all of the Common Stock then held
by it respectively for such non-voting Common Stock.
7.15. XxXxxxxxx. Bear Xxxxxxx shall ensure that any shares of Common
Stock Transferred by it to XxXxxxxxx shall either be shares of non-voting
Common Stock or shall be
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subject to an arrangement whereby Bear Xxxxxxx can exercise the votes of such
shares of Common Stock prior to the first Qualified Public Offering of Common
Stock.
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IN WITNESS WHEREOF, the parties have executed this Stockholder
Agreement as of the date first above written.
MSS-DELAWARE, INC.,
a Delaware corporation
By: /s/ Xxxxxx Xxxxxx
-------------------------------------
Its: President
-------------------------------------
MSS ACQUISITION CORP. II,
a Delaware corporation
By: /s/ Xxxx Xxxxxx
-------------------------------------
Its: President
-------------------------------------
FEDERATED SPECIALTY STORES, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxxxx
-------------------------------------
Its: Vice-President
-------------------------------------
XXXXXX X. XXXXXX
/s/ Xxxxxx X. Xxxxxx
-----------------------
XXXXX X. XXXXXXX
/s/ Xxxxx Xxxxxxx
-----------------------
XXXX X. XXXXX
/s/ Xxxx Xxxxx
-----------------------
