MANAGEMENT RIGHTS AGREEMENT
Exhibit 10.3
This
MANAGEMENT RIGHTS AGREEMENT (the
“Agreement”) is
entered into effective as of August 16, 2005 (the “Effective
Date”) by and
among Venus
Beauty Supply, Inc., a
Florida corporation (the “Company”),
Xxxxxxxx
X. Xxxxxxx, (the
“Consultant”) and
Xxxxxxx
Partners, Ltd., a
Colorado limited partnership (“Shareholder”), with
reference to the facts and circumstances set forth in the Recitals
below:
RECITALS
A.
The
Company has entered into a Securities Exchange Agreement dated as of August 16,
2005 (the “Exchange
Agreement”) under
which it proposes to acquire all of the outstanding capital stock of Fermavir
Research, Inc., a Delaware corporation (“Fermavir”)
B.
The
Company has engaged Consultant to provide services under a Consulting agreement
dated as of August 16, 2005 which, among other things, contemplates Consultant
becoming a member of the Company’s Board of Directors and serving as the
Chairman of the Board.
C.
Shareholder
has agreed to sell 1,918,367.34 of 2,000,000 shares of the Company’s common
stock to the Company for a combination of cash and notes pursuant to a
Repurchase Agreement between the Company and the Shareholder dated as of August
16, 2005 (the “Repurchase
Agreement”) to
facilitate the transaction contemplated by the Exchange Agreement and, as a
result of such sale, a recapitalization of the outstanding shares of the
Company’s common stock and related private placement, the Shareholder’s
ownership of the Company’s capital stock will be reduced to less than
15%.
D.
As
further inducement for the Shareholder to consummate the transactions
contemplated by the Repurchase Agreement, the Company has determined that it is
the best interests of the Company and its shareholders to grant certain rights
to the Shareholder pursuant to this Agreement.
NOW,
THEREFORE, in
consideration of the above Recitals, the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the parties, intending
to be legally bound, agree as follows:
1.
Agreements
Relating to the Board of Directors.
1.1
Board
of Directors.
(a)
Consultant. The
Company agrees to (i) enlarge the number of members constituting the entire
board by consent of the current sole director and fill the vacancy created
thereby by appointing the Consultant as Chairman of the Board; and thereafter
(ii) take “all reasonable action” (defined below) to elect Consultant as the
Chairman of Company’s Board of Directors during the term of this
Agreement
(b)
Shareholder
Designee. So long
as Shareholder owns an aggregate of 1% of the Company’s outstanding capital
stock, Shareholder shall have the right (1) to designate one Director (the
“Shareholder
Designee”) who
(subject to the Director meeting the requirements of any regulation or stock
market or exchange rule applicable to the Company or the Company’s common stock)
shall serve on the Nominating, Compensation and Audit Committees of the
Company’s Board of Directors (or any committee performing a similar function);
(2) to remove the Shareholder Designee with or without cause and to designate a
new member to the Board in the place of the Shareholder Designee removed
designees place; and (3) to appoint a replacement in the event the Shareholder
Designee resigns. The Company agrees to (i) within one two business days of the
Shareholder giving the Company notice of the name, address and general business
background of the Shareholder Designee, call a special meeting of the Board to
held not less that the business day following such call and enlarge the number
of members constituting the entire board by one and fill the vacancy created
thereby by appointing the Shareholder Designee as a director of the Company; and
thereafter (ii) take “all reasonable action” (defined below) to elect the
Shareholder Designee to Board of Directors during the term of this Agreement In
the event, at the time of any prospective action, no member of the board of
Directors is the Shareholder Designee, the Consultant shall be deemed to serve
in such capacity.
1.2
Observer
Rights.
The
Company further agrees during the Term of this Agreement, the Shareholder shall
be entitled to designate a non-voting observer to attend and participate in (but
not to vote at) all meetings of the Board of Directors of the Company and any
committee of the Board (the “Non-voting
Observer”). From
and after such designation until the Shareholder shall notify the Company the
Non-voting Observer is no longer authorized by the Shareholder to serve as such,
the Non-voting Observer shall have the same access to information concerning the
business and operations of the Company and its
Subsidiaries, receive prior notification of all meetings and actions proposed to
be taken by consent, of the Board of Directors and committees thereof, receive
copies of all materials provided to Directors in preparation for and at such
meeting or actions proposed actions taken by consent at the same time as
directors of the Company (but in no event later that three full business days
prior to such meeting or the proposed date action will be taken by written
consent), and shall be entitled to participate in discussions and consult with
the Board of Directors of the Company without voting.
1.3
Definition
of “All Reasonable Action”. The
purposes of this Agreement, “all
reasonable action” shall
mean, in connection with any annual or special meeting of shareholders at which
the term of the designees is to expire cause the Shareholder Designee and the
Consultant to be included in management’s nominations to the board, use its best
efforts to cause such person to be elected including soliciting proxies or
necessary consents in the same manner as are used with respect to management’s
other nominees.
1.4
Action
by the Board of Directors. Without
the approval of the Board of Directors of the Company that includes the
affirmative vote of the Shareholder Designee, the Company shall not, in a single
transaction or a series of related transactions, at any time after the date
hereof, directly or indirectly: (a) issue any equity securities at a price per
share of Common Stock (or, in the case of any security or agreement giving the
holder the right to acquire Common
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Stock,
having a conversion or exercise price per share of Common Stock) less than 95%
of the Current Market Price of the Common Stock, (b) acquire, sell, lease,
transfer or otherwise dispose of any assets other than in the ordinary course of
business consistent with past practice, (c) make any capital expenditure in
excess of $500,000 per fiscal year or not in accordance with the annual budget
approved by the Company’s Board of Directors for the then current fiscal year,
(d) amend, supplement, modify or repeal any provision of the Certificate of
Incorporation or By-Laws of the Company or take any other action, including,
without limitation, the adoption of a stockholders’ rights plan or similar plan,
or the consummation of a capital stock repurchase or redemption; (e) amend or
modify the charter of the Oversight Committee of the Board (defined below”); (f)
enter into, modify, extend or renew an agreement compensating an executive
officer, (g) issue any equity securities having superior voting rights or
dividend or liquidation preference over Common Stock; (h) any investment
(including an acquisition or expenditure or divestiture, in each case in an
amount in excess of $500,000; or (i) the creation of any subsidiary of the
Company, any merger or other reorganization involving the Company, the sale of
substantially all of the assets of the Company or the sale of 51% or more of the
shares of any subsidiary thereof.
1.5
Reimbursement
of Certain Expenses. The
Company shall, upon request therefor, promptly reimburse the Shareholder
Designee and the Non-voting Observer for all reasonable expenses incurred in
connection with his attendance at meetings of the Board of Directors or of
committees of the Board of Directors and any other activities undertaken by him
in his capacity as a director of the Company or any Subsidiary or observer, as
applicable to the same extent as the Company would reimburse any other director
in respect of such activities. The foregoing shall be in addition to, and not in
lieu of (or in duplication of), any indemnification or reimbursement obligations
of the Company under the Certificate of Incorporation or By-Laws of the Company
or by law. The Non-voting Observer shall be entitled to indemnification from the
Company to the maximum extent permitted by Law as though he or she were a
director of the Company or the Subsidiary.
1.6
Directors’
Indemnification; Insurance.
(a)
To the
extent commercially available, the Company shall at all times maintain
directors’ and officers’ liability insurance comparable in terms and coverage to
that maintained on the date hereof, and the Shareholder Designee shall be
covered under such insurance.
(b)
The
Certificate of Incorporation, By-laws and other organizational documents of the
Company shall at all times, to the fullest extent permitted by law, provide for
indemnification of, advancement of expenses to, and limitation of the personal
liability of, the members of the Board of Directors of the Company, and to any
Non-Voting Observer as though he or she were a director of the Company. Such
provisions may not be amended, repealed or otherwise modified in any manner
adverse to any member of the Board of Directors or Non-Voting Observer of the
Company until at least six years following the date that the Shareholder
Designee is no longer a member of the Board of Directors of the Company.
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(c)
The
Shareholder Designee and any Non-Voting Observer are intended to be a
third-party beneficiary of the obligations of the Company pursuant to this
Section 1.6, and the obligations of the Company pursuant to this Section 1.6
shall be enforceable by the Shareholder Designee and the Non-voting Observer.
2.
Financial
Management.
(a)
The
financial affairs of the Company and its subsidiaries shall be supervised by a
finance committee consisting of the Shareholder Designee, the Consultant and, to
the extent possible, of non-management members of the Board which shall review
and approve (including the affirmative vote of the Shareholder Designee, whether
or not such Director is then a member of the audit committee) an operating
budget and material variances therefrom.
(b)
The
highest ranking financial officer of the Company, or in the absence of such an
officer, its Chief Executive Officer, shall have the authority to appoint a
non-officer signatory as a signatory for the Company and its subsidiaries bank
accounts (which shall initially be the Consultant), provided payments in excess
of $50,000 or a series of payments totaling $100,000 or more during a six month
period if less than $50,000 individually, shall require the signatures of the
such officer in addition to such non-officer signatory.
3.
Senior
Executive Officers. During
the term of this Agreement, the selection, appointment and removal of the
Company’s chief executive, chief financial and chief accounting officers, and
the replacement for such officers shall be made by only by a senior executive
selection and oversight committee of up to three members of the Board of
Directors (the “Oversight Committee”). During the term of this Agreement, the
members of the Oversight Committee shall consist of the Consultant, the
Shareholder Designee and an independent member of the Board of
Directors.
4.
Specific
Enforcement. It is
agreed and understood that monetary damages would not adequately compensate the
Shareholder and the Consultant for the breach of this Agreement by the Company,
that this Agreement shall be specifically enforceable, and that any breach or
threatened breach of this Agreement by the Company shall be the proper subject
of a temporary or permanent injunction or straining order. Further, the Company
waives any claim or defense that there is an adequate remedy at law for such
breach or threatened breach.
5.
Notices. Any
notices required or permitted under this Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery or one business day
after deposit with a nationally recognized overnight delivery service. Notices
to the Company shall be addressed to the Company at:
Venus
Beauty Supply, Inc.
00-00
Xxxxxxxx Xxxxxx
Xxxx
Xxxxxx Xxxx, XX 00000
with
a required copy to:
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Xxxxxxx
X. Xxxxxx, Esq.
Xxxxxx
& Xxxxxxxxx LLP
000
Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx
Xxxx, XX 00000
6.
Termination. This
Agreement shall automatically terminate upon the earlier of (a) the adjudication
by a court of competent jurisdiction that the Company is bankrupt or insolvent,
(b) the filing of a certificate of dissolution by the Company, (c) upon the
written consent of the Shareholder and Consultant, (d) upon the listing of
shares of the Company’s common stock on Nasdaq or the NYSE, or (e) on August 31,
2008.
7.
Amendments
and Waivers. Any
term hereof may be amended and the observance of any term hereof may be waived
(either generally or in particular instance and either retroactively or
prospectively) only with the written consent of the Company, the Shareholder and
the Consultant.
8.
Severability. Any
invalidity, illegality or unenforceability of any provision of this Agreement in
any jurisdiction shall not invalidate or render illegal or unenforceable the
remaining provisions hereof in such jurisdiction, provided that the remaining
provisions continue to reflect the intent of the parties hereto, and shall not
invalidate or render illegal or unenforceable such provision in any other
jurisdiction.
9.
Governing
Law This
Agreement shall be governed by and construed under the laws of Florida, unless
the Company shall redomesticate in another jurisdiction, in which case the
substantive corporate laws of such jurisdiction shall govern.
10.
Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. A signature on a copy of this Agreement received by a Party by
facsimile is binding upon the other Party as an original. The Parties agree that
a photocopy of such facsimile may also be treated by the Parties as a duplicate
original.
11.
Successors
and Assigns. Except
as otherwise expressly provided in this Agreement, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors and assigns of the
parties hereto.
12.
Liability
of Shareholder. The
Shareholder shall not, by reason of his ability to designate and cause the
election of any member of the Board hereunder, or otherwise, be subject to any
liability or obligation whatsoever with respect to the management and affairs of
the Company or otherwise be or become responsible for any of the debts,
liabilities or obligations of the Company.
13.
Director
Indemnification. In the
event that any director designated under this Agreement shall be made or
threatened to be made a party to any action, suit or proceeding with respect to
which he may be entitled to indemnification by the Company pursuant to its
corporate
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charter,
by-laws or otherwise, such director shall be entitled to be represented in such
action, suit or proceeding by the Company’s counsel of such director’s choice
and the expenses of such representation shall be reimbursed by the Company to
the extent provided in or authorized by said corporate charter, by-laws or other
provision and permitted by applicable law. The Company and the other parties
hereto agree not to take any action to amend any provision of the corporate
charter or by-laws of the Company to delete or weaken any provision relating to
indemnification or directors, as presently in effect, without the prior written
consent of the Consultant and the Shareholder, for so long as the Shareholder or
Consultant retain the right to designate directors as provided
herein.
15.
Exculpation;
Rights of Parties. The
parties to this agreement shall have the absolute right to exercise or refrain
from exercising any rights that they may have by reason of this Agreement and no
party shall incur any liability to any holder of shares of the Company as a
result of such person exercising or refraining from exercising any such
right.
[SIGNATURE
PAGE FOLLOWS]
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IN
WITNESS WHEREOF, the parties have executed this Management Rights Agreement as
of the date first above written.
| COMPANY: |
|
VENUS
BEAUTY SUPPLY, INC., |
| a Florida corporation | ||
| |
|
|
| /s/ Xxxxx Xxxxxx | ||
|
| ||
|
Name: Xxxxx
Xxxxxx
Title: President | ||
| CONSULTANT | ||
| |
|
|
| /s/ Xxxxxxxx X. Xxxxxxx | ||
|
| ||
| Xxxxxxxx X. Xxxxxxx | ||
|
XXXXXXX
PARTNERS LTD., | ||
| a Colorado Limited Partnership | ||
| |
|
|
| /s/ Xxxxxxxx X. Xxxxxxx | ||
|
| ||
|
Name: Xxxxxxxx
X. Xxxxxxx
Title: Managing
Partner | ||
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