1
EXHIBIT 2.3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of _______, 1997 (the "Agreement"), by
and among AMSCAN HOLDINGS, INC., a Delaware corporation ("Holdings"), GS
CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("GSCP II"), GS
CAPITAL PARTNERS II OFFSHORE, L.P., a Cayman Islands exempt limited partnership
("GSCP II Offshore"), XXXXXXX, XXXXX & CO. VERWALTUNGS GMBH, a corporation
recorded in the Commercial Register Frankfurt, as nominee for GS Capital
Partners II Germany C.L.P. ("GSCP II Germany" and, together with GSCP II and
GSCP II Offshore, "GSCP") and each of the individuals and the Estate of Xxxx X.
Xxxxxxxxxxx (the "Estate") listed on Schedule I hereto (collectively, including
the Estate, the "Management Investors"). References herein to Holdings shall
mean Holdings as the surviving corporation in the Merger (as defined below).
Employees, directors, consultants and certain other Persons (as defined below)
having significant business relationships with Holdings and its Affiliates (as
defined below) may be issued shares of Common Stock (as defined below) (or other
equity securities of Holdings) or securities convertible into or exchangeable
for Common Stock (or other equity securities of Holdings) subject to the terms
of this Agreement and, if so issued, Holdings, without the consent of any other
party hereto, may amend this Agreement to allow any such Person Holdings so
chooses to become an additional Management Investor hereunder, subject to such
Person becoming a signatory to this Agreement. The parties hereto (other than
Holdings) and any other Person who shall hereafter acquire shares of Common
Stock of Holdings or options to acquire Common Stock of Holdings pursuant to the
provisions of, and/or subject to the restrictions and rights set forth in, this
Agreement (including through participation in certain Holdings stock or option
plans) are sometimes hereinafter referred to individually as a "Stockholder" or
collectively as the "Stockholders."
2
RECITALS
A. Holdings, as of the Effective Date (as defined herein), will have an
authorized capital stock consisting of __________ shares of Common Stock, par
value $0.10 per share (the "Common Stock"), each share of which is entitled to
one vote on all stockholder matters as more specifically provided in the amended
certificate of incorporation of Holdings (the "Amended Certificate"), and of
which __________ shares will be issued and outstanding as of the Effective Date.
As used in
3
this Agreement, Common Stock shall include any shares of Restricted Stock (as
defined below) of Holdings granted to Management Investors; provided, however,
that to the extent the Transfer thereof is otherwise prohibited or restricted,
no rights to Transfer (as defined below), including pursuant to Section 2.4 or
Article III, shall be granted hereunder. In addition, Holdings will have
reserved, as of the Effective Date, _________ shares of Common Stock for
issuance pursuant to a Holdings 1997 Stock Incentive Plan (the "Stock Incentive
Plan").
B. An Agreement and Plan of Merger, dated August 10, 1997 (the "Merger
Agreement"), has been executed by and among Confetti Acquisition, Inc., a
Delaware corporation ("Confetti"), and Holdings, pursuant to which Confetti was
merged with and into Holdings (the "Merger") with Holdings as the surviving
corporation in the Merger.
C. In connection with the Merger, Confetti entered into employment
agreements with certain Management Investors (the "Employment Agreements") that
provide for, among other things, the investment by such Management Investors in
the Common Stock and the grant and/or rollover of Options to such Management
Investors. As of or immediately following the Effective Date, Holdings has
executed or shall execute and become a party to the Employment Agreements.
D. In connection with the Merger, Confetti entered into a Voting
Agreement, dated August 10, 1997 (the "Voting Agreement"), by and among
Confetti, the Estate and a certain individual.
-2-
4
E. The individual holdings of Common Stock of each Stockholder,
immediately after the closing of the transactions contemplated in the Merger
Agreement and the Employment Agreements (not assuming the exercise of any
Options) are as follows:
Number of Shares
of Common Stock
Name Held Upon Closing
GSCP II
GSCP II Offshore
GSCP II Germany
Xxxxxx X. Xxxxxxxxxx
Xxxxx X. Xxxxxxxx
Xxxxxxx Xxxxxx
Xxxxx X. Xxxxx
Xxxxxxxxx X. Xxxxxxxx
The Estate of Xxxx X. Xxxxxxxxxxx
-------------------------- -----------
Total
F. The parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock which the parties
hereto own or may hereafter acquire, and to provide for certain rights and
obligations in respect thereof as hereinafter provided.
-3-
5
Draft 8/10/97
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Affected Holder" shall have the meaning ascribed to it in Section 5.10
hereof.
"Affiliate" of a Person shall mean a Person directly or indirectly
controlled by, controlling or under common control with such Person.
"Agreement" shall have the meaning ascribed to it in the Introduction
hereof.
"Amended Certificate" shall have the meaning ascribed to it in the
Recitals hereof.
"Buy-Out Note" shall mean an unsecured promissory note of Holdings, or
a direct or indirect subsidiary thereof, which shall have a stated maturity of 5
years, shall accrue interest at 7 percent per annum, shall be prepayable at the
option of Holdings or such subsidiary at any time, in whole or in part, at its
principal amount plus any accrued and unpaid interest, shall provide for the
reimbursement of reasonable expenses incurred by the holder to enforce the note
and shall accelerate upon the earlier of a Change of Control or the consummation
of an IPO.
"Change of Control" shall mean (1) the acquisition by any
6
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) other than GSCP and their Affiliates of a majority of the
outstanding voting stock of Holdings or (2) the sale of or other disposition
(other than by way of merger or consolidation) of all or substantially all of
the assets of Holdings and its subsidiaries taken as a whole to any Person or
group of Persons.
"Claims" shall mean losses, claims, damages or liabilities, joint or
several, actions or proceedings (whether commenced or threatened).
7
"Common Stock" shall have the meaning ascribed to it in the Recitals
hereof.
"Confetti" shall have the meaning ascribed to it in the Recitals
hereof.
"Demand Registration" shall have the meaning ascribed to it in Section
3.1(b) hereof.
"Drag-Along Right" shall have the meaning ascribed to it in Section
2.5.1 hereof.
"Drag-Along Seller" shall have the meaning ascribed to it in Section
2.5.2 hereof.
"Effective Date" shall have the meaning ascribed to it in Section 5.1
hereof.
"Employment Agreements" shall have the meaning ascribed to it in the
Recitals hereof.
"Estate" shall have the meaning ascribed to it in the Introduction
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean fair value as reasonably determined by
Xxxxxxx Xxxxx in light of all circumstances including comparable recent bona
fide third party sales.
"Xxxxxxx Sachs" shall mean Xxxxxxx, Xxxxx & Co.
"GSCP", "GSCP II", "GSCP II Germany" and "GSCP II Offshore" shall have
the meanings ascribed to them in the Introduction hereof.
"Holdings" shall have the meaning ascribed to it in the Introduction
hereof.
"IPO" shall mean an underwritten initial public offering or public
offerings (on a cumulative basis) of shares of Common Stock pursuant to a
registration statement or registration statements under the Securities Act with
aggregate gross proceeds to Holdings of at least $50 million.
"Management Investors" shall have the meaning ascribed to it in the
Introduction hereof.
-2-
8
The "Merger" shall have the meaning ascribed to it in the Recitals
hereof.
"Merger Agreement" shall have the meaning ascribed to it in the
Recitals hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"New Cost Per Share" shall have the meaning ascribed to it in the
Employment Agreement, by and between Xxxxx X. Xxxxxxxx and Confetti, dated as of
August 10, 1997.
"Offer Shares" shall have the meaning ascribed to it in Section 2.4.1.
"Offeree Stockholders" shall have the meaning ascribed to it in Section
2.4.1.
"Options" shall mean options to purchase shares of Common Stock from
Holdings, whether granted pursuant to the Stock Incentive Plan or otherwise.
"Permitted Transferee" shall have the meaning ascribed to it in
Sections 2.3.3 and 2.3.4 hereof.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization, government (or any department or
agency thereof) or other entity.
"Piggyback Notice" shall have the meaning ascribed to it in Section
3.1(a) hereof.
"Piggyback Registration" shall have the meaning ascribed to it in
Section 3.1(a) hereof.
"Proposed Transferee" means a Person or group as defined in Section
13(d)(3) of the Exchange Act, other than any Stockholders or their Affiliates
(whether any such Affiliate is such prior to or upon consummation of the
proposed Transfer, but not solely by virtue of becoming a party to this
Agreement), to whom Common Stock is proposed to be Transferred pursuant to the
terms of Section 2.4.3(a) or 2.5 of this Agreement.
-3-
9
"Registrable Securities" shall mean the shares of Common Stock;
provided, however, as to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by Holdings, (iv) such securities shall have
ceased to be outstanding (and, in the case of shares of Common Stock underlying
options granted under the Stock Incentive Plan or underlying options or warrants
granted otherwise, such shares of Common Stock shall have ceased to be
outstanding after issuance pursuant to the exercise of such options or
warrants), or (v) in the case of shares of Common Stock held by a Management
Investor, such securities shall have been transferred to any Person other than a
Management Investor or a Permitted Transferee.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with Article III of this Agreement, including
without limitation, (ii) all SEC and stock exchange or the NASD registration and
filing fees, (iii) all fees and expenses of complying with securities or "blue
sky" laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of the Registrable
Securities), (iv) all printing, messenger and delivery expenses, (v) the fees
and disbursements of counsel for Holdings and of Holdings' independent public
accountants, including the expenses of any special audits and/ or "cold comfort"
letters required by or incident to such performance and compliance, (vi) the
reasonable fees and disbursements of one counsel retained by the Stockholders
(if GSCP is one of the selling Stockholders, such counsel to be selected by
GSCP) as a group in connection with each such registration, (vii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
in connection with the requested registration, including any fee payable to a
qualified independent underwriter within the meaning of the rules of the NASD,
but excluding underwriting discounts and commissions and transfer taxes, if any,
(viii) internal expenses of Holdings (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties) and (ix) securities acts liability insurance (if Holdings
elects to obtain such insurance).
-4-
10
"Restricted Stock" shall have the meaning ascribed to it in the
Employment Agreements.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Sale Notice" shall have the meaning ascribed to it is Section 2.4.1.
"SEC" shall mean the Securities and Exchange Commission.
"Section 3.1 Sale Number" shall have the meaning ascribed to it in
Section 3.1(d) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Incentive Plan" shall have the meaning ascribed to it in the
Recitals hereof.
"Subsidiary Dividend" shall have the meaning ascribed to it in Section
4.1 hereof.
"Tag-Along Right" shall have the meaning ascribed to it in Section
2.4.3(a) hereof.
"Tag-Along Seller" shall have the meaning ascribed to it in Section
2.4.3(b) hereof.
"Tag-Along Shares" shall have the meaning ascribed to it in Section
2.4.2 hereof.
"Transfer" shall mean to sell, assign, pledge or encumber or otherwise
transfer, directly or indirectly, whether or not for consideration.
"Transferee" shall mean any Person to whom a Transfer is made,
regardless of the method of Transfer.
"Transferor" shall mean any Person by whom a Transfer is made,
regardless of the method of Transfer.
"Violation" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
"Voting Agreement" shall have the meaning ascribed to it in the
Recitals hereof.
2.
-5-
11
ARTICLE II
RESTRICTIONS ON TRANSFERS OF STOCK
2.1 General Prohibition on Transfers.
(a) Prohibition on Transfers Generally. No Management Investor shall,
at any time prior to an IPO, Transfer any shares of Common Stock, unless such
Transfer is made in accordance with Section 2.3, 2.4 or 2.5 or pursuant to a
Piggyback Registration, and any Transfer by any Management Investor of any
shares of Common Stock owned as of the date hereof or hereafter acquired not in
accordance with such provisions shall be null and void.
(b) Recordation. Holdings shall not record upon its books any Transfer
of shares of Common Stock held or owned by any of the Management Investors to
any other Person except Transfers in accordance with this Agreement.
(c) Obligations of Transferees. No Transfer of shares of Common Stock
by a Management Investor otherwise permitted pursuant to this Agreement (other
than pursuant to a Piggyback Registration or pursuant to a Tag-Along Right or
Drag-Along Right (each as defined herein)) shall be effective unless (x) the
Transferee (including a Permitted Transferee pursuant to Section 2.3) shall have
executed an appropriate document in form and substance reasonably satisfactory
to Holdings confirming that (i) the Transferee takes such shares subject to all
the terms and conditions of this Agreement to the same extent as its Transferor
was bound by and entitled to the benefits of such provisions and (ii) the shares
shall bear legends, substantially in the forms required by Section 2.6, and (y)
such document shall have been delivered to and approved (as described above) by
Holdings prior to such Transferee's acquisition of shares of Common Stock.
(d) Transfers to Competitors. Notwithstanding anything to the contrary
in this Agreement, no Management Investor shall, at any time, directly or
indirectly, Transfer any shares of Common Stock to any Person who is a
competitor of Holdings or to any Affiliate of such a competitor (other than
Transfers to Holdings and its Affiliates), unless such Transfer (i) is made in
connection with the exercise of a Tag-Along Right pursuant to Section 2.4 or in
connection with the exercise of a Drag-Along Right pursuant to Section 2.5, in
which event such sale may be effected only in accordance with such Section 2.4
or Section 2.5, as applicable, or (ii) is made in accordance with the terms of
this Agreement and is made pursuant to a widely distributed, underwritten public
offering registered
-6-
12
under the Securities Act (or an underwritten offering pursuant to the exercise
of such Management Investor's piggyback registration rights pursuant to Section
3.1(a) hereof) or pursuant to a sale effected through an open market,
nondirected broker's transaction pursuant to Rule 144 in which the seller does
not know that the buyer is a competitor. For purposes of this provision, the
good faith determination of a majority of the entire Board that a proposed
Transferee is a "competitor," made within 30 days of written notice to the Board
of the proposed Transfer, shall in all respects be conclusive.
2.2 Compliance with Securities Laws. No Management Investor shall
Transfer any shares of Common Stock unless the Transfer is made in accordance
with the terms of this Agreement and (i) the Transfer is pursuant to an
effective registration statement under the Securities Act and in compliance with
any other applicable federal securities laws and state securities or "blue sky"
laws or (ii) such Management Investor shall have furnished Holdings with an
opinion of counsel, if reasonably requested by Holdings, which opinion and
counsel shall be reasonably satisfactory to Holdings, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Securities Act and under any applicable state securities
or "blue sky" laws and that the Transfer otherwise complies with this Agreement
and any other applicable federal securities laws and state securities or "blue
sky" laws.
2.3 Permitted Transfers.
2.3.1 GSCP Transfers. (a) GSCP and any Affiliate of GSCP shall be free
to Transfer shares of Common Stock to any Person, in whole at any time, or in
part from time to time; provided, however, that if such Person is not Affiliate
of GSCP, such Transfer shall be subject to Section 2.4 and Section 2.5 hereof.
In any Transfer made pursuant to the foregoing to an Affiliate of GSCP, the
Transferee shall agree, in connection with such Transfer, for the benefit of
Holdings, that such Transferee will Transfer back to the Transferor or another
continuing Affiliate of GSCP (that will be similarly bound by this sentence) any
shares of Common Stock so Transferred, if the Transferee at any time is no
longer an Affiliate of GSCP.
(b) No Transfer of shares of Common Stock by GSCP or an Affiliate of
GSCP otherwise permitted pursuant to this Section 2.3.1 shall be effective
unless the Transferee (whether or not an Affiliate of GSCP) shall have executed
an appropriate document in form and substance reasonably satisfactory to
Holdings confirming that the Transferee takes such shares subject to all the
terms and conditions of this Agreement to the same
-7-
13
extent as its Transferor was bound by and entitled to the benefits of such
provisions.
2.3.2 Management Investors. (a) The restrictions contained in Sections
2.1(a) of this Agreement with respect to Transfers by Management Investors
(other than the Estate) of shares of Common Stock shall not apply to any
Transfer by a Management Investor (other than the Estate): (i) to or among such
Management Investor's spouse, children, grandchildren or other living
descendants, or to a trust or family partnership of which there are no principal
(i.e., corpus) beneficiaries or partners other than the grantor or one or more
of such Management Investor, spouse or described relatives, and provided, in the
case of a trust, that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval and, in the case of a family partnership, that the
partners thereof have the power to act with respect to the partnership's assets
without court approval and the partnership is not permitted to (x) distribute
assets to Persons who are not among the relatives listed above or (y) have
partners who are not among the relatives listed above, and, in any case, all the
partners agree, for the benefit of Holdings and GSCP, not to amend such
provisions; (ii) to a legal representative of such Management Investor in the
event such Management Investor becomes mentally incompetent or to such
Management Investor's personal representative following the death of such
Management Investor; (iii) with the prior written approval of Holdings, which
approval may be granted or withheld by the Board of Directors of Holdings in its
sole and absolute discretion; and (iv) pursuant to any pledge by a Management
Investor to Holdings or an Affiliate thereof for money borrowed to purchase
shares of Common Stock pursuant to the Employment Agreements, if applicable.
(b) The restrictions contained in Section 2.1(a) of this Agreement with
respect to Transfers by the Estate shall not apply to any of the following
Transfers by the Estate: (i) to a qualified terminable interest property trust
in accordance with the terms of the will of the decedent of the Estate or (ii)
with the prior written approval of Holdings which approval may be granted or
withheld by the Board of Directors of Holdings in its sole and absolute
discretion.
2.3.3 Permitted Transferees. Transferees to whom Transfers are
permitted pursuant to clauses (i), (ii) and (iii) of Section 2.3.2(a) and
clauses (i) and (ii) of Section 2.3.2(b) are referred to herein as "Permitted
Transferees." Any such permitted Transfer shall be subject to the terms of this
Agreement, including compliance with Section 2.1(c).
-8-
14
2.3.4 Transfer by Permitted Transferees. The restrictions contained in
Section 2.1(a) of this Agreement with respect to Transfers by Management
Investors of shares of Common Stock shall not apply to any Transfer by a
Permitted Transferee of a Management Investor to such Management Investor or to
another Permitted Transferee of such Stockholder, and any such Transferee shall
also be a "Permitted Transferee," subject to the provisions of Section 2.3.3.
2.3.5 Other Transfer Restrictions. The restrictions contained in
Sections 2.1(a), 2.4 and 2.5 hereof and the provisions regarding Permitted
Transferees contained in this Section 2.3 shall be in addition to and not in
lieu or limitation of any restrictions on the ownership or Transfer of shares of
Common Stock (including with respect to any Restricted Stock) contained in any
Employment Agreement or any analogous provision of any employment, compensation
or benefit agreement or arrangement or other agreement between Confetti or
Holdings and any Stockholder; provided, however, that upon the termination of
any such Employment Agreement or other such agreement or arrangement or lapsing
of such restrictions, the restrictions and provisions contained herein shall
continue in full force and effect pursuant to this Agreement.
2.4 Tag-Along Rights.
2.4.1 Sale Notice. If GSCP proposes to sell any of the Common Stock
owned by it, other than (a) to an Affiliate of GSCP, (b) pursuant to the
exercise of a Drag-Along Right (as defined below) pursuant to Section 2.5 of
this Agreement, (c) pursuant to a Demand Registration (which affords piggyback
registration rights pursuant to Section 3.1) or Piggyback Registration, or (d)
following an IPO, sales effected through open market, nondirected broker's
transactions pursuant to Rule 144, then GSCP shall first give written notice
(the "Sale Notice") to Holdings and to each of the Management Investors (such
Management Investors, being referred to herein as the "Offeree Stockholders"),
stating that GSCP desires to make such sale, referring to Section 2.4 of this
Agreement, specifying the number of shares of Common Stock proposed to be sold
by GSCP pursuant to the offer (the "Offer Shares"), and specifying the price,
the form of consideration and the material terms pursuant to which such sale is
proposed to be made.
2.4.2 Tag-Along Election. Within seven days of the date of receipt of
the Sale Notice, each Offeree Stockholder, other than GSCP, shall deliver to
GSCP and to Holdings a written notice stating whether the Offeree Stockholder
elects to sell a pro rata portion of its Common Stock (equal to (A) the total
number of shares of Common Stock owned by such Offeree
-9-
15
Stockholder, plus the total number of shares of Common Stock then issuable upon
exercise of vested Options then exercisable by such Offeree Stockholder,
multiplied by (B) a fraction, (i) the numerator of which is the number of Offer
Shares and (ii) the denominator of which is the total number of shares of Common
Stock held by GSCP plus the total number of shares of Common Stock then issuable
upon exercise or conversion of any convertible securities, if applicable, then
exercisable or convertible by GSCP) to such Proposed Transferee on the same
terms and conditions as GSCP (with respect to each Offeree Stockholder, its
"Tag-Along Shares"). An election pursuant to the first sentence of this Section
2.4.2 shall constitute an irrevocable commitment by the Offeree Stockholder
making such election to sell such Common Stock to the Proposed Transferee if the
sale of Offer Shares to the Proposed Transferee occurs on the terms contemplated
hereby.
2.4.3 Seller's Rights to Transfer.
(a) Third Party Sale; Tag-Along Buyer. A sale to a Proposed Transferee
shall only be consummated if the Proposed Transferee shall purchase, within 120
days of the date of the Sale Notice, concurrently with and on the same terms and
conditions and at the same price as the Offer Shares, all of each Offeree
Stockholder's Tag-Along Shares with respect to such sale, in accordance with
their elections pursuant to Section 2.4.2 (the "Tag-Along Right").
(b) Sale Agreement. Each Offeree Stockholder electing to sell Tag-Along
Shares (a "Tag-Along Seller") agrees to cooperate in consummating such a sale,
including, without limitation, by becoming a party to the sales agreement and
all other appropriate related agreements (other than any amendment to such
Tag-Along Seller's Employment Agreement, if any), delivering at the consummation
of such sale, stock certificates and other instruments for such Common Stock
duly endorsed for transfer, free and clear of all liens and encumbrances, and
voting or consenting in favor of such transaction (to the extent a vote or
consent is required) and taking any other necessary or appropriate action in
furtherance thereof, including the execution and delivery of any other
appropriate agreements, certificates, instruments and other documents. The
foregoing notwithstanding, in connection with such sale, a Tag-Along Seller, as
such, shall not be required to make any representations and warranties with
respect to Holdings or Holdings' business or with respect to any other seller.
In addition, each Tag-Along Seller shall be severally responsible for its
proportionate share of the expenses of sale incurred by the sellers in
connection with such sale and the obligations and liabilities incurred by the
sellers in connection with such
-10-
16
sale. Such obligations and liabilities shall include (to the extent such
obligations are incurred) obligations and liabilities for indemnification
(including for (x) breaches of representations and warranties made in connection
with such sale by Holdings or any other seller with respect to Holdings or
Holdings' business, (y) breaches of covenants and (z) other matters), and shall
also include amounts paid into escrow or subject to holdbacks, and amounts
subject to post-closing purchase price adjustments. The foregoing
notwithstanding, (1) without the written consent of a Tag-Along Seller, the
amount of such obligations and liabilities for which such Tag-Along Seller shall
be responsible shall not exceed the gross proceeds received by such Tag-Along
Seller in such sale and (2) a Tag-Along Seller shall not be responsible for the
fraud of any other seller or for any indemnification obligations and liabilities
for breaches of representations and warranties made by any other seller with
respect to such other seller's (i) ownership of and title to shares of capital
stock of Holdings, (ii) organization, (iii) authority and (iv) conflicts and
consents.
(c) No Liability. Notwithstanding any other provision contained in this
Section 2.4.3, there shall be no liability on the part of Holdings or GSCP in
the event that the sale pursuant to this Section 2.4.3 is not consummated for
any reason whatsoever. The decision whether to effect a Transfer pursuant to
this Section 2.4.3 shall be in the sole and absolute discretion of GSCP.
2.5 Drag-Along Right.
2.5.1 Exercise. If GSCP proposes to make a bona fide sale of all of its
shares of Common Stock to a Proposed Transferee, pursuant to a stock sale,
merger, business combination, recapitalization, consolidation, reorganization,
restructuring or similar transaction, GSCP shall have the right (a "Drag-Along
Right"), exercisable upon fifteen (15) days' prior written notice to the other
Stockholders, to require the other Stockholders to sell all of their shares of
Common Stock and, at the election of GSCP, Options (whether vested or unvested)
to the Proposed Transferee on the same terms and conditions and at the same
price (in the case of Options the purchase price of each Option shall be equal
to the purchase price attributable to the number of shares of Common Stock
issuable upon exercise of such Option less the exercise price thereof) as GSCP.
2.5.2 Sale Agreement. Each Stockholder selling shares of Common Stock
pursuant to a transaction contemplated by this Section 2.5 (a "Drag-Along
Seller") agrees to cooperate in consummating such a sale, including, without
limitation, by
-11-
17
becoming a party to the sales agreement and all other appropriate related
agreements (other than any amendment to such Drag-Along Seller's Employment
Agreement, if any), delivering at the consummation of such sale, stock
certificates and other instruments for such shares of Common Stock duly endorsed
for transfer, free and clear of all liens and encumbrances, and voting or
consenting in favor of such transaction (to the extent a vote or consent is
required) and taking any other necessary or appropriate action in furtherance
thereof, including the execution and delivery of any other appropriate
agreements, certificates, instruments and other documents. The foregoing
notwithstanding, in connection with such sale, a Drag-Along Seller, as such,
shall not be required to make any representations and warranties with respect to
Holdings or Holdings' business or with respect to any other seller. In addition,
each Drag-Along Seller shall be severally responsible for its proportionate
share of the expenses of sale incurred by GSCP in connection with such sale and
the obligations and liabilities incurred by the seller in connection with such
sale. Such obligations and liabilities shall include (to the extent such
obligations are incurred) obligations and liabilities for indemnification
(including for (x) breaches of representations and warranties made in connection
with such sale by Holdings or any other seller with respect to Holdings or
Holdings' business, (y) breaches of covenants and (z) other matters), and shall
also include amounts paid into escrow or subject to hold-backs, and amounts
subject to post-closing purchase price adjustments. The foregoing
notwithstanding, (1) without the written consent of a Drag-Along Seller, the
amount of such obligations and liabilities for which such Drag-Along Seller
shall be responsible shall not exceed the gross proceeds received by such
Drag-Along Seller in such sale and (2) a Drag-Along Seller shall not be
responsible for the fraud of any other seller or any indemnification obligations
and liabilities for breaches of representations and warranties made by any other
seller with respect to such other seller's (i) ownership of and title to shares
of capital stock of Holdings, (ii) organization, (iii) authority and (iv)
conflicts and consents.
2.5.3 No Liability. Notwithstanding any other provision contained in
this Section 2.5, there shall be no liability on the part of Holdings or GSCP in
the event that the sale pursuant to this Section 2.5 is not consummated for any
reason whatsoever. The decision whether to effect a Transfer pursuant to this
Section 2.5 shall be in the sole and absolute discretion of GSCP.
-12-
18
2.6 Additional Provisions Relating to Restrictions on Transfers.
2.6.1 Legends. Each of the Stockholders hereby agrees that each
outstanding certificate representing shares of Common Stock held or owned by
such Stockholder or its Transferee, including any certificate representing
shares of Common Stock acquired in accordance with the provisions of this
Agreement or the Employment Agreements and any certificates representing shares
of Common Stock issued upon exercise of the Options, in any case, subject to the
provisions of this Agreement and issued prior to the date when the applicable
restrictions are terminated pursuant to Section 2.6.3, shall bear endorsements
reading substantially as follows:
(a) The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state and may not be transferred, sold or otherwise
disposed of except while such a registration is in effect or pursuant to an
exemption from registration under said Act and applicable state securities
laws.
(b) The securities represented by this certificate are subject to the
terms and conditions set forth in a Stockholders Agreement, dated as of
_________, 1997, copies of which may be obtained from the issuer or from
the holder of this security. No transfer of such securities will be made on
the books of the issuer unless accompanied by evidence of compliance with
the terms of such agreement.
Each outstanding certificate representing shares of Common Stock shall
also bear any legend required by the terms of the Employment Agreements or the
Stock Incentive Plan or as Holdings may otherwise deem appropriate.
2.6.2 Copy of Agreement. A copy of this Agreement shall be filed with
the corporate secretary of Holdings and kept with the records of Holdings and
shall be made available for inspection by any stockholder of Holdings at the
principal executive offices of Holdings.
2.6.3 Termination of Restrictions. The restriction referred to in the
endorsement required pursuant to Section 2.6.1(a) shall cease and terminate as
to any particular shares of Common Stock when, in the reasonable opinion of
counsel for Holdings, such restriction is no longer required in order to
-13-
19
assure compliance with the Securities Act. Holdings or Holdings' counsel, at
their election, may request from any Stockholder a certificate or an opinion of
such Stockholder's counsel with respect to any relevant matters in connection
with the removal of the endorsement set forth in Section 2.6.1(a) from such
Stockholder's stock certificates, any such certificate or opinion of counsel to
be reasonably satisfactory to Holdings and its counsel. The restrictions
referred to in Section 2.6.1(b) shall cease and terminate as to any particular
shares of Common Stock when, in the reasonable opinion of counsel for Holdings,
the provisions of this Agreement are no longer applicable to such shares or this
Agreement shall have terminated in accordance with its terms. Any other
restrictions referred to in any other legends required pursuant to Section 2.6.1
shall cease and terminate when, in the reasonable opinion of counsel for
Holdings, such restrictions are no longer applicable. Whenever such restrictions
shall cease and terminate as to any shares of Common Stock, the Stockholder
holding such shares shall be entitled to receive from Holdings, without expense
(other than applicable transfer taxes, if any, if such unlegended shares are
being delivered and transferred to any Person other than the registered holder
thereof), new certificates for a like number of shares of Common Stock not
bearing the relevant legend(s) set forth or referred to in Section 2.6.1.
3.
ARTICLE III
REGISTRATION RIGHTS
3.1 Piggyback and Demand Registrations.
(a) Piggyback Registrations. If at any time Holdings proposes to
register for sale by Holdings under the Securities Act any of its equity
securities (other than a registration on Form S-4 or Form S-8, or any
successor or similar forms), or any shares of Common Stock held by GSCP
pursuant to Section 3.1(b), in a manner that would permit registration of
Registrable Securities for sale to the public under the Securities Act and
in an underwritten offering, Holdings will each such time promptly give
written notice to all Stockholders who beneficially own any Registrable
Securities of its intention to do so, of the registration form of the SEC
that has been selected by Holdings and of such holders' rights under this
Section 3.1 (the "Piggyback Notice"). Holdings will use its reasonable best
efforts to include, and to cause the underwriter or underwriters to
include, in the proposed offering, on the
-14-
20
same terms and conditions as the securities of Holdings included in such
offering, all Registrable Securities that Holdings has been requested in
writing, within 15 calendar days after the Piggyback Notice is given, to
register by the Stockholders thereof (each such registration pursuant to this
Section 3.1(a), a "Piggyback Registration"); provided, however, that (i) if, at
any time after giving a Piggyback Notice and prior to the effective date of the
registration statement filed in connection with such registration, Holdings
shall determine for any reason not to register such equity securities (or, in
the case of a Demand Registration (as defined below), GSCP so determines),
Holdings may, at its election (or, in the case of a Demand Registration where
GSCP so determines, Holdings shall), give written notice of such determination
to all Stockholders who beneficially own any Registrable Securities and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such abandoned registration, and (ii) in case of a
determination by Holdings to delay registration of its equity securities (or, in
the case of a Demand Registration, GSCP so determines), Holdings shall be
permitted to (or, in the case of a Demand Registration where GSCP so determines,
Holdings shall) delay the registration of such Registrable Securities for the
same period as the delay in registering such other equity securities (provided
that clauses (i) and (ii) shall not relieve Holdings of its obligations under
Section 3.1(b)). In the case of any registration of Registrable Securities in an
underwritten offering pursuant to this Section 3.1(a), all Stockholders
proposing to distribute their securities pursuant to this Section 3.1(a) shall,
at the request of Holdings (or, in the case of a Demand Registration, GSCP),
enter into an agreement in customary form with the underwriter or underwriters
selected by Holdings (or, in the case of a Demand Registration, selected by
GSCP). Notwithstanding the foregoing, following an IPO, Holdings shall not be
obligated to effect registration of Registrable Securities for which Piggyback
Registration is requested by a Management Investor if, at the time of such
request, all such Registrable Securities are eligible for sale to the public by
the requesting Management Investor without registration under Rule 144 under the
Securities Act, with such sale not being limited by the volume restrictions
thereunder.
(b) Demand Registrations. Holdings, upon the reasonable request of
GSCP, shall, from time to time, use its reasonable best efforts to register
under the Securities Act any reasonable portion of Registrable Securities held
by GSCP (including, at the election of GSCP, in an underwritten offering) and
bear all expenses in connection with such offering in a manner consistent with
paragraph (c) below and shall enter into such other agreements in furtherance
thereof (including with
-15-
21
underwriters selected by GSCP, including, in any case, Affiliates of GSCP as
lead underwriters, if requested by GSCP) (each such registration pursuant to
this Section 3.1(b), a "Demand Registration"), and Holdings shall provide
customary indemnifications in such instances (in a manner consistent with the
indemnification provisions of this Article III) to GSCP and any such
underwriters; provided, however, that Holdings shall not be obligated to effect
more than four Demand Registrations. A registration shall not count as a Demand
Registration unless and until the registration statement relating thereto has
been declared effective by the SEC and not withdrawn.
(c) Expenses. Holdings shall pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 3.1; provided, however, that each Stockholder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Stockholder's Registrable Securities pursuant to
a registration statement effected pursuant to this Section 3.1.
(d) Priority in Piggyback and Demand Registrations. If the managing
underwriter for a registration pursuant to this Section 3.1 shall advise
Holdings in writing that, in its opinion, the number of securities requested to
be included in such registration exceeds the number (the "Section 3.1 Sale
Number") that can be sold in an orderly manner in such offering within a price
range acceptable to Holdings (or, in the case of a Demand Registration, to
GSCP), Holdings shall include in such offering (i) first, all the securities
Holdings proposes to register for its own sale, and (ii) second, to the extent
that the securities Holdings proposes to register are less than the Section 3.1
Sale Number, all Registrable Securities requested to be included by all
Stockholders; provided, however, that if the number of such Registrable
Securities exceeds (x) the Section 3.1 Sale Number less (y) the number of
securities included pursuant to clause (i) hereof, then the number of such
Registrable Securities included in such registration shall be allocated pro rata
among all requesting Stockholders, on the basis of the relative number of shares
of such Registrable Securities each such Stockholder then holds. If there is any
reduction or exclusion of Registrable Securities pursuant to this Section 3.1(d)
in connection with a Demand Registration, such registration shall not be deemed
to be a Demand Registration for purposes of determining the maximum number of
Demand Registrations Holdings is obligated to effect pursuant to Section 3.1(b)
hereof.
-16-
22
(e) Underwriting Requirements. In connection with any offering
involving any underwriting of securities in a Piggyback Registration, Holdings
shall not be required to include any Stockholder's Registrable Securities in
such underwriting unless such Stockholder accepts the terms of the underwriting
as agreed upon between Holdings and the underwriters in such quantities and on
such terms as set forth in Section 3.1(a) hereof, and such Management Investor
agrees to sell such Management Investor's securities on the basis provided
therein and completes and/or executes all questionnaires, indemnities, lock-ups,
underwriting agreements and other documents (including powers of attorney and
custody arrangements) required generally of all selling Stockholders, in each
case in customary form and substance, which are requested to be executed in
connection therewith.
3.2 Registration Procedures. If and whenever Holdings is required to
use its reasonable best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Article III,
Holdings will, as soon as practicable:
(a) prepare and file with the SEC the requisite registration
statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become
and remain effective;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for such period as Holdings shall deem appropriate and to
comply with the provisions of the Securities Act with respect to the
sale or other disposition of all securities covered by such
registration statement during such period;
(c) furnish to each seller of such Registrable Securities and each
underwriter such number of copies of such registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as such seller may reasonably
request;
-17-
23
(d) promptly notify each Stockholder that holds Registrable
Securities covered by such registration statement, (i) when such
registration statement or any post-effective amendment or supplement
thereto becomes effective, (ii) of the issuance by the SEC or any state
securities authority of any stop order, injunction or other order or
requirement suspending the effectiveness of such registration statement
(and take all reasonable action to prevent the entry of such stop order
or to remove it if entered, or the initiation of any proceedings for
that purpose), or (iii) of the happening of any event as a result of
which the registration statement, as then in effect, the prospectus
related thereto or any document included therein by reference includes
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made and promptly file such amendments and supplements which
may be required on account of such event and use its reasonable best
efforts to cause each such amendment and supplement to become
effective;
(e) promptly furnish counsel for each underwriter, if any, and for
the selling Stockholders of Registrable Securities copies of any
written request by the SEC or any state securities authority for
amendments or supplements to a registration statement and prospectus or
for additional information;
(f) use reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement at the
earliest possible time;
(g) use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on the principal
securities exchange or authorized for quotation on NASDAQ on which
similar equity securities issued by Holdings are then listed or
authorized for quotation, or eligible for listing or quotation, if the
listing or authorization for quotation of such securities is then
permitted under the rules of such exchange or the NASD;
(h) enter into an underwriting agreement with the underwriter of
such offering in the form customary for such underwriter for similar
offerings, including such representations and warranties by Holdings,
provisions regarding the delivery of opinions of counsel for Holdings
-18-
24
and accountants' letters, provisions regarding indemnification and
contribution, and such other terms and conditions as are at the time
customarily contained in such underwriter's underwriting agreements for
similar offerings (the sellers of Registrable Securities which are to
be distributed by such underwriter(s) may, at their option, require
that any or all of the representations and warranties by, and the other
agreements on the part of, Holdings to and for the benefit of such
underwriter(s) shall also be made to and for the benefit of such
sellers of Registrable Securities);
(i) make available for inspection by representatives of the
selling Stockholders who hold Registrable Securities and any
underwriters participating in any disposition pursuant hereto and any
counsel or accountant retained by such Stockholders or underwriters,
all relevant financial and other records, pertinent corporate documents
and properties of Holdings and cause the respective officers, directors
and employees of Holdings to supply all information reasonably
requested by any such representative, underwriter, counsel or
accountant in connection with a registration pursuant hereto; provided,
however, that, with respect to records, documents or information which
Holdings determines, in good faith, to be confidential and as to which
Holdings notifies such representatives, underwriters, counsel or
accountants in writing of such confidentiality, such representatives,
underwriters, counsel or accountants shall not disclose such records,
documents or information unless (i) the release of such records,
documents or information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction, (ii) such records,
documents or information have previously been generally made available
to the public, or (iii) the disclosure of such records, documents or
information is necessary, in the written opinion of outside legal
counsel, to avoid or correct a material misstatement or omission in the
registration statement and then only after reasonable request has been
made to Holdings to make such disclosure and Holdings has denied such
request. Each selling Stockholder of such Registrable Securities agrees
that information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of Holdings or its Affiliates (or
for such Stockholder's business purposes or for any reason other than
in connection with a registration hereunder) unless and until such
information is made generally available (other than by such Stockholder
or where such Stockholder knows that such information became publicly
available as a
-19-
25
result of a breach of any confidentiality arrangement) to the public.
Each selling Stockholder of such Registrable Securities further agrees
that it will, upon learning that disclosure of such records is sought,
give notice to Holdings and allow Holdings, at its expense, to
undertake appropriate action to prevent disclosure of the records
deemed confidential;
(j) permit any beneficial owner of Registrable Securities who, in
the sole judgment, exercised in good faith, of such holder, might be
deemed to be a controlling person of Holdings, to participate in the
preparation of such registration or comparable statement and to require
the insertion therein of material, furnished to Holdings in writing,
that in the judgment of such holder, as aforesaid, should be included;
and
(k) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking
into account the needs of Holdings' businesses and the requirements of
the marketing process) in the marketing of Registrable Securities in
any underwritten offering.
Holdings may require each seller of Registrable Securities as to
which any registration is being effected to furnish Holdings such information
regarding such seller and the distribution of such securities as Holdings may
from time to time reasonably request in writing. Holdings shall not be required
to register or qualify any Registrable Securities covered by such registration
statement under any state securities, or "blue sky," laws of such jurisdictions
other than as it deems necessary in connection with the chosen method of
distribution or to take any other actions or do any other things other than
those it deems necessary or advisable to consummate such distribution, and
Holdings shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not
otherwise be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any such
jurisdiction.
Each beneficial owner of Registrable Securities agrees that upon
receipt of any notice from Holdings of the happening of any event of the kind
described in clause (d) of this Section 3.2, such beneficial owner will
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
beneficial owner's receipt of the copies of the supplemented or amended
prospectus contemplated by clause (d) of
-20-
26
this Section 3.2, and, if so directed by Holdings, such beneficial owner will
deliver to Holdings (at Holdings' expense) all copies, other than permanent file
copies then in such beneficial owner's possession, of the prospectus covering
such Registrable Securities that was in effect prior to such amendment or
supplement.
3.3 Indemnification.
(a) In the event of any registration of any Registrable Securities
pursuant to this Article III, Holdings will, and hereby does, indemnify and hold
harmless, to the fullest extent permitted by law, the seller of any Registrable
Securities covered by such registration statement, its directors, officers,
fiduciaries, employees and stockholders or general and limited partners (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof), each other Person who participates as an underwriter
or a qualified independent underwriter, if any, in the offering or sale of such
securities, each director, officer, fiduciary, employee and stockholder or
general and limited partner of such underwriter or qualified independent
underwriter, and each other Person (including any such Person's directors,
officers, fiduciaries, employees and stockholders or general and limited
partners), if any, who controls such seller or any such underwriter or qualified
independent underwriter, within the meaning of the Securities Act, against any
and all Claims in respect thereof and expenses (including reasonable fees and
expenses of counsel and any amounts paid in any settlement effected with
Holdings' consent, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims or expenses arise out
of or are based upon any of the following actual or alleged statements,
omissions or violations (each, a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement under which such securities were registered pursuant to this Agreement
under the Securities Act or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary, final or summary prospectus or any amendment
or supplement thereto, together with the documents incorporated by reference
therein, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to
-21-
27
make the statements therein, in light of the circumstances under which they were
made, not misleading, or (iii) any violation by Holdings of any federal, state
or common law rule or regulation applicable to Holdings and relating to action
required of or inaction by Holdings in connection with any such registration,
and Holdings will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, that Holdings shall not be liable to any such indemnified party in any
such case to the extent such Claim or expense arises out of or is based upon any
Violation which occurs in reliance upon and in conformity with written
information furnished to Holdings or its representatives by or on behalf of such
indemnified party expressly stating that such information is for use therein.
(b) Each holder of Registrable Securities that are included in the
securities as to which any Demand Registration or Piggyback Registration is
being effected (and, if Holdings requires as a condition to including any
Registrable Securities in any registration statement filed in connection with
any Demand Registration or Piggyback Registration, any underwriter and qualified
independent underwriter, if any) shall, severally and not jointly, indemnify and
hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section 3.3), to the extent permitted by law, Holdings,
its directors, officers, fiduciaries, employees and stockholders (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof) and each Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, controlling Holdings within the meaning of the
Securities Act and all other prospective sellers and their directors, officers,
fiduciaries, employees and stockholders or general and limited partners and
respective controlling Persons (including any such Person's directors, officers,
fiduciaries, employees and stockholders or general and limited partners) against
any and all Claims and expenses (including reasonable fees and expenses of
counsel and any amounts paid in any settlement effected with the consent of the
indemnifying party, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims or expenses arise out
of or are based upon any Violation which occurs in reliance upon and in
conformity with written information furnished to Holdings or its representatives
by or on behalf of such holder or underwriter or qualified independent
underwriter, if any, expressly stating that such information is for use in
connection with any registration statement,
-22-
28
preliminary, final or summary prospectus or amendment or supplement or document
incorporated by reference into any of the foregoing; provided, however, that the
aggregate amount which any such holder, underwriter or qualified independent
underwriter shall be required to pay pursuant to this Section 3.3(b) and
Sections 3.3(c) and (e) shall be limited to (x) in the case of any such holder,
the amount of the gross proceeds received by such holder upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim and (y) in the case of any such underwriter or qualified independent
underwriter, the amount of the total sales price of the Registrable Securities
sold through or by it pursuant to the registration statement giving rise to such
claim.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 3.3 (with appropriate modifications)
shall be given by Holdings and each seller of Registrable Securities (and, if
Holdings requires as a condition to including any Registrable Securities in any
registration statement filed in connection with any Demand Registration or
Piggyback Registration, any underwriter and qualified independent underwriter,
if any) with respect to any required registration or other qualification of
securities under any state securities and "blue sky" laws.
(d) Any Person entitled to indemnification under this Agreement shall
notify promptly the indemnifying party in writing of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section 3.3, but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 3.3, except to the extent the
indemnifying party is prejudiced thereby and shall not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than under this Section 3.3. In case any action or proceeding is brought against
an indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, unless in the reasonable opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any
-23-
29
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within 20 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so; or (ii) if such indemnified
party who is a defendant in any action or proceeding which is also brought
against the indemnifying party reasonably shall have concluded that there may be
one or more legal defenses available to such indemnified party which are not
available to the indemnifying party; or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall have
the right to assume or continue its own defense as set forth above (but with no
more than one firm of counsel for all indemnified parties in each jurisdiction,
except to the extent any indemnified party or parties reasonably shall have
concluded that there may be legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any expenses therefor. No indemnifying
party shall, without the written consent of the indemnified party, which consent
shall not be unreasonably withheld, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Section 3.3(a), (b) or
(c), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other from the relevant offering of
securities. If, however, the allocation provided in the immediately preceding
sentence is not permitted by applicable law, or if the indemnified party failed
to give the notice required by Section 3.3(d) above and
-24-
30
the indemnifying party is prejudiced thereby, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of but also
the relative benefits received by the indemnifying party, on the one hand, and
the indemnified party, on the other hand, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the Violation relates to information supplied by
the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 3.3(e) were to be determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentences of this
Section 3.3(e). The amount paid or payable in respect of any Claim shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
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 guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 3.3(e) to the contrary, no indemnifying party (other
than Holdings) shall be required pursuant to this Section 3.3(e) to contribute
any amount in excess of (x) in the case of an indemnifying party that is a
holder of Registrable Securities, the gross proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, or (y) in the case of an indemnifying party that is an underwriter or a
qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate, less,
in any such case referred to in (x) and (y), the amount of all indemnification
and contribution payments made pursuant to Sections 3.3(b) and (c) and this
Section 3.3(e), as the case may be, in connection with such offering.
(f) The indemnity agreements contained herein shall be in addition to
any other rights to indemnification or contribution which any indemnified party
may have pursuant to law or contract and shall remain operative and in full
force and effect regardless of any investigation made or omitted by or on behalf
of any indemnified party and shall survive the transfer of the Registrable
Securities by any such party.
-25-
31
(g) The indemnification and contribution required by this Section
3.3 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(h) In connection with underwritten offerings, Holdings will use
reasonable best efforts to negotiate terms of indemnification that are
reasonably favorable to the various sellers pursuant thereto, as appropriate
under the circumstances.
3.4 Holdback Agreement.
(a) If requested in writing by Holdings or the underwriter, if
any, of any offering affording Stockholders registration rights pursuant to
Section 3.1 (whether or not some or all of such Stockholder's Registrable
Securities are subject to a cutback pursuant to Section 3.1 of this Agreement),
including without limitation an IPO, each Stockholder agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144, of any
Registrable Securities or any other equity security of Holdings or of any
security convertible into or exchangeable or exercisable for any equity security
of Holdings (in each case, other than as part of such underwritten public
offering) within 14 days before or 180 days after the effective date of a
registration statement affording Stockholders registration rights pursuant to
Section 3.1 (including where subject to a cutback pursuant to Section 3.1(d)).
(b) If requested in writing by the underwriter of any offering in
connection with a Demand Registration, Holdings agrees not to effect any public
sale or distribution (other than public sales or distributions solely by and for
the account of Holdings of securities issued (x) pursuant to any employee or
director benefit or similar plan or any dividend reinvestment plan or (y) in any
acquisition by Holdings) of any Registrable Securities or any other equity
security of Holdings or of any security convertible into or exchangeable or
exercisable for any equity security of Holdings (in each case, other than as
part of such underwritten public offering), within 14 days before or 180 days
after the effective date of a registration statement filed in connection with a
Demand Registration, or for such shorter period as the sole or lead managing
underwriter shall request, in any such case, unless consented to by such
underwriter.
4.
-26-
32
ARTICLE IV
MANAGEMENT INVESTORS' PUTS AND CALLS
4.1 Call Rights. If, prior to the consummation of an IPO, a Management
Investor (other than the Estate or the Estate's Permitted Transferees) dies or
the Management Investor's (other than the Estate or the Estate's Permitted
Transferees) employment by Holdings terminates for any reason (including due to
a Disability, as defined in such Management Investor's Employment Agreement or
any analogous provision of any employment, compensation or benefit agreement or
arrangement, if any, and if not so defined, upon the good faith determination of
the Board of Directors of Holdings of such Disability), Holdings shall have the
right, at its election, to purchase all (but not less than all) of the
Management Investor's shares of Common Stock (including any shares held by its
Permitted Transferees) within 6 months after such termination, or 15 months
after such termination in the case of death of the Management Investor (with
respect to any shares of Common Stock acquired after such termination or death
upon the exercise of Options held by the Management Investor, such period to run
from the date of exercise) at a price equal to the Fair Market Value of such
Common Stock determined as of, in all cases other than the death of the
Management Investor, the date such termination is effective and, in the case of
the Management Investor's death, as of the date of death. Holdings shall pay the
purchase price in cash to the extent that (x) subsidiaries of Holdings are
permitted to dividend the funds for such purchase to Holdings (a "Subsidiary
Dividend") (under both applicable law and the indebtedness of Holdings and its
Affiliates) and (y) Holdings is permitted to purchase such shares for cash
(under both applicable law and such indebtedness). Holdings shall fund any
amount not permitted to be funded through a Subsidiary Dividend or to be used to
purchase such shares with a Buy-Out Note. The Board of Directors of Holdings
may, in its discretion, assign the rights and obligations of Holdings under this
Section 4.1 to any other Person, but no such assignment shall relieve Holdings
of its obligations hereunder to the extent not satisfied by such assignee.
4.2 Put Rights. If, prior to the consummation of an IPO, (a) a
Management Investor (other than the Estate or the Estate's Permitted Transferee)
dies or the Management Investor's (other than the Estate or the Estate's
Permitted Transferee's) employment by Holdings is terminated by Holdings for any
reason (including due to a Disability, as defined in such Management Investor's
Employment Agreement or any analogous provision of any employment, compensation
or benefit
-27-
33
agreement or arrangement, if any, and if not so defined, upon the good faith
determination of the Board of Directors of Holdings of such Disability), the
Management Investor or the Management Investor's legal representative or
trustee, as the case may be, shall have the right, within three months after
such termination is effective (or one year after the date of death in the case
of the Management Investor's death), to require Holdings to purchase all (but
not less than all) of the Management Investor's Common Stock (including any
shares held by its Permitted Transferees) at a price equal to (A) in the case of
termination by reason of death or Disability, the Fair Market Value thereof
determined as of the date of death (in the case of termination due to death) or
the date such other termination is effective and (B) in the case of termination
by Holdings for any other reason, the lower of (1) Fair Market Value and (2) the
product of (x) the number of shares of Common Stock and (y) the New Cost Per
Share (subject to adjustment to reflect any adjustments to the Common Stock made
to reflect any merger, reorganization, consolidation, recapitalization, spinoff,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common Stock,
as Holdings reasonably shall deem fair and appropriate). To the extent the funds
for such purchase are permitted under the indebtedness of Holdings and its
Affiliates and applicable law to be funded through a Subsidiary Dividend and to
be used to purchase such shares, Holdings shall pay the purchase price in cash.
Holdings shall pay any amount not permitted to be funded through a Subsidiary
Dividend or to be used to purchase such shares with a Buy-Out Note. The Board of
Directors of Holdings may, in its discretion, assign the rights and obligations
of Holdings under this Section 4.2 to any other Person, but no such assignment
shall relieve Holdings of its obligations hereunder to the extent not satisfied
by such assignee.
5.
ARTICLE V
MISCELLANEOUS
5.1 Effectiveness; Term. (a) This Agreement shall become effective (the
"Effective Date") simultaneously with the closing of the transactions under the
Merger Agreement and shall terminate without liability or penalty on the part of
any party or its directors, officers, fiduciaries, employees and stockholders or
general and limited partners (and the directors, officers, fiduciaries,
employees and stockholders or general and limited partners thereof) to any other
party or such other party's Affiliates upon the termination of the Merger
Agreement pursuant to its terms.
-28-
34
(b) Unless theretofore terminated pursuant to the preceding paragraph,
the rights and obligations of, and restrictions on, the Stockholders under
Article II of this Agreement shall terminate when GSCP and its Affiliates no
longer hold in the aggregate at least 40% of the fully diluted shares of Common
Stock then outstanding. Notwithstanding the foregoing, in the event Holdings
enters into any agreement to merge with or into any other Person or adopts any
other plan of recapitalization, consolidation, reorganization or other
restructuring transaction as a result of which the Stockholders and their
respective Permitted Transferees (including GSCP and any Affiliates thereof)
shall own less than a majority of the outstanding voting power of the entity
surviving such transaction, this Agreement shall terminate.
(c) Unless theretofore terminated pursuant to Section 5.1(a), and
notwithstanding anything in Section 5.1(b) to the contrary, the provisions
contained in Article III hereof shall continue to remain in full force and
effect until the earlier to occur of the twentieth anniversary of the date
hereof and the date on which there are no longer any Registrable Securities
outstanding or issuable or thereafter available for or subject to issuance to
any Stockholder upon exercise or conversion of any options, warrants, rights or
other convertible securities; provided, however, that the provisions of Section
3.3 hereof shall survive termination pursuant to Section 5.1(b) or (c) of this
Agreement.
5.2 No Voting or Conflicting Agreements. Prior to an IPO, no Management
Investor shall grant any proxy or enter into or agree to be bound by any voting
trust with respect to the Common Stock nor, at any time, shall any Management
Investor enter into any stockholder agreements or arrangements of any kind with
any Person with respect to the Common Stock inconsistent with the provisions of
this Agreement (whether or not such agreements and arrangements are with other
Management Investors or holders of Common Stock that are not parties to this
Agreement). The foregoing prohibition includes, but is not limited to,
agreements or arrangements with respect to the acquisition, disposition or
voting of shares of Common Stock inconsistent with the provisions of this
Agreement. No Management Investor shall act, at any time, for any reason, as a
member of a group or in concert with any other Persons in connection with the
acquisition, disposition or voting of shares of Common Stock in any manner which
is inconsistent with the provisions of this Agreement.
-29-
35
5.3 Approval of Stock Incentive Plan by Stockholders.
The Stockholders by their execution of this Agreement, hereby approve
the Stock Incentive Plan, a copy of which is attached hereto as Exhibit A.
5.4 Specific Performance. The parties hereto acknowledge that there would be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement. Any
remedy under this Section 5.4 is subject to certain equitable defenses and to
the discretion of the court before which any proceedings therefor may be
brought.
5.5 Notices. All notices, statements, instructions or other documents
required to be given hereunder shall be in writing and shall be given either
personally or by mailing the same in a sealed envelope, by overnight courier or
by first-class mail, postage prepaid and either certified or registered, in
either case, return receipt requested, or by telecopy, addressed to Holdings at
its principal offices and to the other parties at their addresses reflected on
the signature pages hereto. Each party hereto, by written notice given to the
other parties hereto in accordance with this Section 5.5, may change the address
to which notices, statements, instructions or other documents are to be sent to
such party. All notices, statements, instructions and other documents hereunder
that are mailed or telecopied shall be deemed to have been given on the date of
mailing or, in the case of telecopying, upon confirmation of receipt.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties, and their respective successors and
assigns. If any Stockholder or any Affiliate thereof or any Transferee of any
Stockholder shall acquire any shares of Common Stock in any manner, whether by
operation of law or otherwise, such shares shall be held subject to all of the
terms of this Agreement, and by taking and holding such shares such Person shall
be conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
5.7 Recapitalizations and Exchanges Affecting Common Stock. The provisions
of this Agreement shall apply, to the full extent set forth herein with respect
to Common Stock, to any and all shares of capital stock or equity securities of
-30-
36
Holdings or any successor or assign of Holdings (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of, the Common Stock, or which may be issued
by reason of any stock dividend, stock split, reverse stock split, combination,
recapitalization, reclassification or otherwise. Upon the occurrence of any of
such events, numbers of shares and amounts hereunder shall be appropriately
adjusted, as determined in good faith by the Board of Directors of Holdings.
5.8 Governing Law. This Agreement shall be governed and construed and
enforced in accordance with the laws of the State of New York, without regard to
the principles of conflicts of law thereof.
5.9 Descriptive Headings, Etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, references to "hereof," "herein," "hereby," "hereunder" and
similar terms shall refer to this entire Agreement.
5.10 Amendment; Waiver; Bylaws. This Agreement may not be amended or
supplemented except by an instrument in writing signed by Holdings and by
Stockholders holding a majority of the then outstanding shares of Common Stock
held by all Stockholders; provided that any amendment, supplement or
modification of this Agreement which adversely affects the rights and
obligations of any Stockholder (an "Affected Holder") differently than those of
any other Stockholder shall also require the approval of such Affected Holder;
provided further, the foregoing proviso notwithstanding, any amendment,
supplement or modification of this Agreement that adversely affects the
Management Investors (or a group thereof) as a class may be approved by
Management Investors (or members of such group, as the case may be) holding
Common Stock or Options to purchase Common Stock, which together represent a
majority of the sum of the total number of (x) the shares of such Common Stock
and (y) the shares of Common Stock issuable upon exercise of such Options held
by all the Management Investors (or such group, as the case may be). The
foregoing notwithstanding, (i) Holdings, without the consent of any other party
hereto, may amend Schedule I and the signature pages hereto, in order to add any
Management Investor or any other party that becomes a holder of Common Stock or
securities convertible into or exercisable for Common Stock and (ii) GSCP and
Holdings may amend Article III of this Agreement (other than in a manner that
would materially reduce the Management Investor's rights or materially increase
the Management Investor's obligations with respect to Piggyback
-31-
37
Registrations) without the agreement or consent of any Management Investor.
5.11 Severability. If any term or provision of this Agreement shall to any
extent be invalid or unenforceable, the remainder of this Agreement shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. Upon the determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect their original intent as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
5.12 Further Assurances. The parties hereto shall from time to time execute
and deliver all such further documents and do all acts and things as the other
party may reasonably require to effectively carry out or better evidence or
perfect the full intent and meaning of this Agreement, including, to the extent
necessary or appropriate, using all reasonable efforts to cause the amendment of
the Amended Certificate or the By-Laws in order to provide for the enforcement
of this Agreement in accordance with its terms. In furtherance and not in
limitation of the foregoing, in the event of any amendment, modification or
termination of this Agreement in accordance with its terms, the Stockholders
shall cause the Board to meet within thirty days following such amendment,
modification or termination or as soon thereafter as is practicable for the
purpose of amending the Amended Certificate and By-Laws, as may be required as a
result of such amendment, modification or termination, and, to the extent
required by law, proposing such amendments to the stockholders of Holdings
entitled to vote thereon, and such action shall be the first action to be taken
at such meeting.
5.13 Complete Agreement; Counterparts. This Agreement (together with the
Merger Agreement, the Voting Agreement, the Stock Incentive Plan, the Employment
Agreements and the other agreements referred to herein and therein) constitutes
the entire agreement and supersedes all other agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
5.14 Certain Transactions. The parties hereto agree that Xxxxxxx Xxxxx shall
have the exclusive right to perform
-32-
38
all consulting, financing, investment banking and similar services for Holdings
and its subsidiaries (including as lead underwriter or in any analogous role in
connection with any public or private offering of securities or debt, and
including in connection with the Merger), for customary compensation and on
other terms that are customary for similar engagements with unaffiliated third
parties, and neither Holdings nor its subsidiaries shall engage any other Person
to perform such services during the term of this Agreement except to the extent
Xxxxxxx Sachs shall consent thereto or shall decline, at its sole election, to
perform such services.
5.15 No Third Party Beneficiaries. The provisions of this Agreement shall be
only for the benefit of the parties to this Agreement, and no other Person
(other than Xxxxxxx Xxxxx with respect to Section 5.14) shall have any third
party beneficiary or other right hereunder.
-33-
39
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed on the date first written above.
AMSCAN HOLDINGS, INC.
By:
Name:
Title:
Address:
Attn:
Telecopier No.:
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.
General Partner
By: GS Advisors Inc., its
General Partner
By:
Name:
Title:
Address: c/o Goldman, Sachs & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx
Telecopier No.: (000) 000-0000
40
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
General Partner
By: GS Advisors II, Inc., its
General Partner
By:
Name:
Title:
Address: c/o Goldman, Sachs & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx
Telecopier No.: (000) 000-0000
XXXXXXX, SACHS & CO. VERWALTUNGS GMBH
By:
Name:
Title:
By:
Name:
Title:
Address: c/o Goldman, Xxxxx & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx
Telecopier No.: (000) 000-0000
41
THE ESTATE OF XXXX X. XXXXXXXXXXX
By:
Name:
Title: Executrix
Address:
The following individuals, in their capacities as trustees or other fiduciaries
(whether on the date hereof or at any point in the future) of any trust or
similar instrument created by or at the instruction of, or under the last will
and testament of, Xxxx X. Xxxxxxxxxxx or the Estate, acknowledge this Agreement
and agree to be bound by the terms hereof in each such capacity, such agreement
being for the benefit of each of the parties hereto, and such individuals
further agree to cause any such trust or similar instrument upon its formation
to become a party to this Agreement as a Permitted Transferee pursuant to
Section 2.3.3 hereof (and as if a Management Investor hereunder) and in
accordance herewith have agreed to and acknowledged this Agreement:
By: Dated:
Name:
Title: Trustee
Address:
By: Dated:
Name:
Title: Trustee
Address:
42
Dated:
Xxxxxx X. Xxxxxxxxxx
Management Investor
Address:
Dated:
Xxxxx X. Xxxxxxxx
Management Investor
Address:
Dated:
Xxxxxxx Xxxxxx
Management Investor
Address:
Dated:
Xxxxx X. Xxxxx
Management Investor
Address:
Dated:
Xxxxxxxxx X Xxxxxxxx
Management Investor
Address:
43
EXHIBIT A
[STOCK INCENTIVE PLAN]
44
Schedule I
Management Investors
------------------
------------------
------------------
------------------
------------------
