DIRECTOR DESIGNATION AGREEMENT
Exhibit 10.4
THIS DIRECTOR DESIGNATION AGREEMENT dated as of June 23, 2008 (this “Agreement”), is
entered into by and between RHI Entertainment, Inc., a Delaware corporation (“RHI Inc.”)
and KRH Investments LLC, a Delaware limited liability company (“KRH”).
RECITALS
A. WHEREAS, RHI Inc. is contemplating an offer and sale of its shares of common stock, par
value $ 0.01 per share, (“Shares”) to the public in an underwritten initial public offering
(the “Initial Public Offering”);
B. WHEREAS, immediately prior to or concurrent with the execution of this agreement, RHI Inc.
will become the sole-managing member, and KRH will become the non-managing member, of RHI
Entertainment Holdings II, LLC (“Holdings II”) pursuant to that certain amended and
restated limited liability operating agreement of Holdings II, as it may be amended, supplemented
or otherwise modified from time to time (the “LLC Agreement”);
C. WHEREAS, immediately prior to or concurrent with the execution of this agreement, Holdings
II, RHI Inc. and KRH will enter into a Membership Unit Subscription Agreement, dated as of June 23,
2008 (the “Subscription Agreement”), pursuant to which Holdings II has agreed to issue
common membership units to RHI Inc. (“Membership Units”) in exchange for the proceeds
received from the Initial Public Offering and to issue Membership Units to KRH in exchange for the
contribution of its interests in RHI Entertainment LLC, a Delaware limited liability company; and
D. WHEREAS, in order to induce KRH to enter into the Subscription Agreement with Holdings II
and to appoint RHI Inc. as managing member of Holdings II, RHI Inc., as sole-managing member of
Holdings II, will agree to permit KRH to designate a certain number of persons for nomination to
the board of directors of RHI Inc. (the “Board”) on the terms and conditions set forth
herein;
E. NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, RHI
Inc. and KRH agree as follows:
1. Definitions
1.1 Certain Definitions. For purposes of this Agreement, the following terms shall have the
meanings specified in this Section 1.1:
“Affiliate” has the meaning set forth in the LLC Agreement.
“Approval Rights” means the right of KRH to approve certain actions enumerated in
Section 4.3(b) of the LLC Agreement.
“Beneficial Owner” or “beneficial owner” (including, with correlative meanings, the
terms “beneficial ownership” and “beneficially owns”) has the meaning attributed to it in Rules
13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except that in addition, the
provisions of Section 2.3 of this Agreement will apply in calculating the beneficial ownership of
Membership Units by KRH or a Permitted Transferee.
“Certificate of Incorporation” means that certain Amended and Restated Certificate of
Incorporation of RHI Inc., dated as of June 23, 2008, as it may be amended, supplemented or
otherwise modified from time to time.
“Change of Control” has the meaning set forth in the LLC Agreement.
“Director” means a member of the Board.
“Exchange” means the right to exchange Membership Units for Shares and/or cash
pursuant to Article 9 of the LLC Agreement.
“Group” has the meaning set forth in Section 13(d)(3) and Rule 13d-5 of the Securities
Exchange Act of 1934, as amended.
“Independent Director” means any Director, so long as the Shares are traded on Nasdaq
Global Market, satisfies the definition of an “independent director” set forth in the applicable
rules in the Marketplace Rules of the Nasdaq Stock Market, Inc., as such rules may be amended from
time to time, or, if the principal exchange upon which the Shares are then traded is not Nasdaq
Global Market, such term shall mean any Director of RHI Inc. that satisfies the definition of
independent director according to the rules of such other exchange.
“Member” means each Person that becomes a member, as contemplated in the LLC
Agreement, of Holdings II in accordance with the provisions of the LLC Agreement and has not ceased
to be a Member as provided in Section 3.1(d) of the LLC Agreement, and each of such Member’s
transferees, if applicable.
“Nominating Committee” means the nominating committee of the Board or any committee of
the Board authorized to perform the function of nominating directors for the Board.
“Permitted Transferee” means (i) in the case of any Member (other than RHI Inc.) and
any Permitted Transferee of any Member (other than RHI Inc.), an Affiliate of such Member or
Permitted Transferee, or (ii) in the case of KRH and any Permitted Transferee of KRH, a
non-Affiliate of KRH or Permitted Transferee if more than 50% of the non-Affiliate’s general voting
power is owned directly or indirectly through one or more entities that are the same entities that
own 50% or more of the general voting power of the Ultimate Parent of KRH or if the Ultimate Parent
of KRH, directly or indirectly through Subsidiaries, manages the affairs or investments of such
non-Affiliate. RHI Inc. shall not have any Permitted Transferees.
“Person” means any individual, corporation, limited liability company, partnership,
trust, joint stock company, business trust, unincorporated association, joint venture, governmental
authority or other entity or organization of any nature whatsoever or any Group of two or more of
the foregoing.
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“Retiring Director” means any Director whose term expires at the next annual meeting
of stockholders of RHI Inc. pursuant to the terms of the Certificate of Incorporation.
“Securities Laws” means the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder.
“Subsidiary” has the meaning set forth in the LLC Agreement.
“Transfer” or “Transferred” means, directly or indirectly, to sell, transfer,
give, exchange, bequest, assign, pledge, encumber, hypothecate or otherwise dispose of, either
voluntarily or involuntarily, any of the rights granted under Section 2 (including through a Change
of Control of a Person holding units directly or indirectly), provided, however, a Change of
Control of an ESA Party or its stockholders shall not be a Transfer.
“Ultimate Parent” means Xxxxx Interco VII, LLC, KEP VI AIV, LLC, any investment fund
managed by Xxxxx & Company L.P. or any Affiliate of Xxxxx & Company L.P. or any of their respective
subsidiaries or any successors thereto.
Additional
Terms. In addition to defined terms identified in Section 1.1, the following terms
have the meanings assigned in the Sections referred to in the table below:
| Term | Section | Term | Section | |||
| KRH | Preamble | Holdings II | Recitals | |||
| RHI Inc. | Preamble | Membership Units | Recitals | |||
| Board | Recitals | Shares | Recitals | |||
| Subscription Agreement | Recitals | Designee | §2.1 | |||
| LLC Agreement | Recitals | Additional Designees | §2.2 | |||
| Initial Public Offering | Recitals | Ownership Threshold Calculation | §2.3 |
2. Nominee Designation
2.1 Designation Right.. So long as KRH beneficially owns at least 5% of the Membership Units in
Holdings II, KRH shall have the right to designate a number of persons for appointment or
nomination, as the case may be, for election to the Board (each, a “Designee”).
2.2 Specific Designees.
| (a) | The following sets forth the number of Designees that KRH shall be permitted to designate for appointment or nomination, as the case may be, for election to the seven-member Board (with the number of Designees subject to adjustment pursuant to paragraphs (b) and (c) below in the event of an increase in the size of the Board): |
| i. | If KRH’s Beneficial Ownership of Membership Units in Holdings II is not less than 30% of the then outstanding Membership Units, then KRH shall have the right to designate four (4) Designees; |
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| ii. | If KRH’s Beneficial Ownership of Membership Units in Holdings II is less than 30% (but remains at or above 20%) of the then outstanding Membership Units, then KRH shall have the right to designate three (3) Designees; | ||
| iii. | If KRH’s Beneficial Ownership of Membership Units in Holdings II is less than 20% (but remains at or above 10%) of the then outstanding Membership Units, then KRH shall have the right to designate two (2) Designees; and | ||
| iv. | If KRH’s Beneficial Ownership of the Membership Units in Holdings II is less than 10% (but remains at or above 5%) of the then outstanding Membership Units, then KRH shall have the right to designate one (1) Designee. | ||
| v. | If KRH’s Beneficial Ownership of the Membership Units in Holdings II is less than 5% of the then outstanding Membership Units, then KRH shall no longer have the right to designate any number of Designees; provided, however, if KRH’s Beneficial Ownership of Membership Units in Holdings II subsequently becomes greater than 5%, KRH shall have the right to designate a number of designees in accordance with this Section 2.2. |
| (b) | In the event that (i) the size of the Board is increased and (ii) at the time of such increase, KRH Beneficial Owns at least 30% of Membership Units in Holdings II, then KRH shall have the right to designate Additional Designees (defined below) with such Additional Designees equaling a number that will constitute a majority of the Board. | ||
| (c) | In the event that (i) the size of the Board is increased and (ii) KRH Beneficially Owns less than 30% of the then outstanding Membership Units in Holdings II, KRH may designate Additional Designees equal to the comparable percentage of Designees that KRH would have on a seven-member Board rounded up to the nearest whole number; provided however, that such percentage shall be rounded down if rounding up would cause the number of KRH’s Designees, if elected, to make up a majority of the Board. | ||
| (d) | at every meeting of the Board, or a committee thereof, for which Directors are appointed or are nominated to stand for election by stockholders of RHI Inc., KRH will have the right to designate those persons to be appointed or nominated, as the case may be, for election to the Board for each Retiring Director that was a prior Designee of KRH in accordance with this Section 2.2. |
2.3 Calculation of KRH’s Beneficial Ownership of Membership Units. For purposes of
calculating the Beneficial Ownership of Membership Units by KRH in connection with the designation
rights of KRH (the “Ownership Threshold Calculation”), the following shall apply: (a)
Shares held by KRH or a Permitted Transferee issued upon an
Exchange of
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Membership Units will be counted, without duplication, as being Membership Units
beneficially owned by KRH as if the Membership Units had not been exchanged, so long as KRH or a
Permitted Transferee continues to hold such Shares; (b) Shares held by KRH or a Permitted
Transferee issued as a stock dividend, stock split, recapitalization, anti-dilution adjustment or
acquired through a rights offering to shareholders and/or Members, to the extent acquired in
respect of Shares described in clause (a) above or this clause (b) shall be counted, without
duplication, as being Membership Units beneficially owned by KRH, as if such Shares were received
in an Exchange and KRH or the Permitted Transferee held the non-Exchanged Membership Units; and (c)
Membership Units beneficially owned by Permitted Transferees of KRH will be counted as being
Beneficially Owned by KRH.
2.4 Independent Directors. So long as KRH Beneficially Owns no less than 30% of the then
outstanding Membership Units in Holdings II, KRH shall designate one Designee who qualifies as an
Independent Director at the time of such designation; provided, however, that if
the size of the RHI Inc. Board is increased, the additional KRH Designees (“Additional
Designees”), the number of which shall be determined pursuant to Section 2.2(b) and Section
2.2(c), shall include no less than the minimum number of Independent Directors necessary to provide
for a majority of Independent Directors on Board. Notwithstanding anything to the contrary herein,
KRH shall not be obligated to designate a Designee who qualifies as an Independent Director if KRH,
at any time, Beneficially Owns less than 30% of the then outstanding Membership Units.
2.5 Original Designees. KRH shall designate the following persons as the original Designees to
the Board:
| Designees | Class | |
Xxxxx X. Xxxxxxx
|
Class I | |
Xxxxxx X. Xxxxxxx
|
Class II | |
Xxxxxx X. Xxxxx, Xx
|
Class III | |
Xxxxxxx X. Xxxxxxxx
|
Class III |
provided, that Section 6.4 shall not apply to Section 2.5 of this Agreement;
provided, further, KRH shall have the right to amend, modify or supplement its
original Designees without the consent of RHI Inc.
2.6 No Assignment Right.. The designation rights of KRH under this Section 2 are not assignable,
except in accordance with Section 6.3.
2.7 RHI Inc.’s Obligations.
| (a) | RHI Inc. agrees to cause each Designee to be included in the director nominations of the Board submitted to RHI Inc.’s stockholders for election of directors and in the proxy statement prepared by management in connection with soliciting proxies for every meeting of RHI Inc.’s stockholders called with respect to the election of members of the Board. |
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| (b) | Notwithstanding anything herein to the contrary, RHI Inc. shall not be obligated to cause to be nominated for election to the Board or recommend to the stockholders the election of any Designee (i) who fails to submit to RHI Inc. on a timely basis such questionnaires as RHI Inc. may reasonably require of its Directors generally and such other information as RHI Inc. may reasonably request in connection with the preparation of its filings under the Securities Laws, or (ii) the Board or the Nominating Committee determines in good faith, after consultation with outside legal counsel, that such action would constitute a breach of its fiduciary duties or applicable law; provided, however, that upon the occurrence of either (i) or (ii) above, RHI Inc. shall promptly notify KRH of the occurrence of such event and permit KRH to provide an alternate Designee sufficiently in advance of any Board action, the meetings of the stockholders called or written action of stockholders with respect to such election of nominees and RHI Inc. shall be subject to its obligations under Section 2.7(a) with respect to such alternate Designee; provided further, that upon the occurrence of either (i) or (ii) above or the occurrence of any vacancy of the Board as set forth in Section 2.7(c), KRH’s Approval Rights shall be in effect until such time that a successor Designee is elected to the Board. | ||
| (c) | At any time a vacancy occurs because of the death, disability, resignation or removal of a Designee, then the Board, or any committee thereof, will not vote, fill such vacancy or take any action enumerated in Section 5.2 of the Certificate of Incorporation until such time that (i) KRH has designated a successor Designee and the Board has filled the vacancy and appointed such successor Designee, (ii) KRH fails to designate a successor Designee within 30 days of such vacancy, or (iii) KRH has specifically waived its rights to designate a successor Designee under this Agreement and has consented to the Board, or any committee thereof, taking a vote on such enumerated actions prior to the Board filling the vacancy with a successor Designee. In the case of 2.7(c)(i), KRH shall have the right to fill such vacancy with a successor Designee in either Class I, Class II or Class III of the Board so long as the class selected has a vacancy at the time a successor Designee is provided by KRH. | ||
| (d) | At any time that KRH shall have the right to designate at least one Designee under this Xxxxxxx 0, XXX Inc. shall not take any action in accordance with the Certificate of Incorporation to change the size of the Board from seven members without the prior written consent of KRH. |
2.8 Multiple Holders.. If KRH and one or more of its Permitted Transferees hold Membership Units
at the same time, KRH shall act on behalf of all of them for the purpose of exercising the rights
granted under this Section 2.
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3. Specific Performance. Each of the parties to this Agreement acknowledges that each party
hereto will be irreparably damaged if any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that
each of RHI Inc. and KRH shall be entitled to an injunction to prevent breaches of this Agreement
and to specific enforcement of this Agreement and its terms and provisions in any action instituted
in any court of the United States or any state having subject matter jurisdiction, in addition to
any other remedy to which the parties hereto may be entitled at law or in equity. Each of the
parties hereto hereby consents to personal jurisdiction in any such action brought in the United
States District Court for the District of Delaware or in any court of the State of Delaware having
subject matter jurisdiction. No bond or other similar undertaking shall be required of any party
seeking relief under this Section.
4. Covenant of RHI Inc. RHI Inc. agrees that neither it nor any of its Subsidiaries shall enter
into any agreement or understanding or make any commitment to any Person, or otherwise take any
action, that would violate or be inconsistent with any provision or agreement contained in this
Agreement.
5. Termination.
5.1 Withdrawal of Registration Statement. If the registration statement in connection with the
Initial Public Offering is withdrawn for any reason within one year of the date hereof, this
Agreement shall become null and void and be of no further force or effect whatsoever and neither
KRH nor RHI Inc. shall have any further obligations hereunder or with respect hereto.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and construed in all respects in
accordance with the laws of the State of Delaware without giving effect to principles of conflicts
of law.
6.2 Notices. All notices, demands or other communications to be given under or by reason of this
Agreement shall be in writing and shall be delivered by hand or sent by facsimile or sent by
overnight courier service and shall be deemed given when received, as follows:
| If to RHI Inc.: | If to KRH: | |||
| RHI Entertainment, Inc. | KRH Investments LLC | |||
| 1325 Avenue of the Americas, 00xx Xxxxx | x/x Xxxxx & Xxxxxxx, | |||
| Xxx Xxxx, XX 00000 | 000 Xxxx Xxxxxx, 00xx Xxxxx, | |||
| Xxx Xxxx, XX 00000 | ||||
| Attention: General Counsel | Attention: General Counsel | |||
| Fax: (000) 000-0000 | Fax: (000) 000-0000 | |||
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| If to RHI Inc.: | If to KRH: | |||
| with a copy to: | with a copy to: | |||
| Xxxxxx & Xxxxxxx LLP | Xxxxxx & Xxxxxxx LLP | |||
| 000 Xxxxx Xxxxxx | 000 Xxxxx Xxxxxx | |||
| Xxx Xxxx, XX 00000 | Xxx Xxxx, XX 00000 | |||
| Attention: Xxxxxxx X. Xxx, Esq. | Attention: Xxxxxxx X. Xxx, Esq. | |||
| Fax: (000) 000-0000 | Fax: (000) 000-0000 |
Any party to this Agreement may change its address for notices, demands and other
communications under this Agreement by giving notice of such change to the other party hereto in
accordance with this Section 6.2.
6.3 Benefit of Parties; Transfer.
| (a) | This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, legal representatives and Permitted Transferees. | ||
| (b) | In the event of a Transfer of Membership Units by KRH, the transferee shall not have the rights and powers of KRH unless (a) the transferee is a Permitted Transferee of KRH prior to and following such Transfer and (b) KRH has partially assigned its rights under this Agreement so that the Permitted Transferee has the right to appoint or nominate, as the case may be, a number of Designees to the Board with such number of Designees determined by KRH at the time of the Transfer of Membership Units and corresponding partial assignment of the rights contained herein. | ||
| (c) | This Agreement may not be assigned by RHI Inc. except with the prior written consent of all other parties to this Agreement. | ||
| (d) | Nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement. |
6.4 Amendment.. This Agreement may not be amended, modified, altered or supplemented except by
means of a written instrument executed on behalf of RHI Inc. and KRH
6.5 Waiver.. No failure on the part of either party hereto to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of either party hereto in exercising any
power, right, privilege or remedy under this Agreement, shall operate as a waiver thereof; and no
single or partial exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
6.6 Severability.. If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or unenforceable.
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6.7 Entire Agreement. This Agreement sets forth the entire understanding of parties hereto and
supersedes all other agreements and understandings between the parties hereto relating to the
subject matter hereof.
6.8 Counterparts and Facsimiles. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other. The parties
hereto may execute the signature pages hereof and exchange such signature pages by facsimile
transmission.
6.9 Interpretation of Agreement.
| (a) | As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, and shall be deemed to be followed by the words “without limitation.” | ||
| (b) | Unless otherwise specified, references in this Agreement to “Sections” and “Exhibits” are intended to refer to Sections of, and Exhibits to, this Agreement. | ||
| (c) | The Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. | ||
| (d) | Each party hereto and its counsel cooperated in drafting and preparation of this Agreement. Any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived. |
[Signature page to follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day
and year first above written.
| RHI ENTERTAINMENT, INC. |
||||
| By: | /s/ Xxxxx X. Xxxxxxxx | |||
| Name: | Xxxxx X. Xxxxxxxx | |||
| Title: | Executive Vice President General Counsel & Secretary |
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| KRH INVESTMENTS LLC |
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| By: | /s/ Xxxxx X. Xxxxxxxx | |||
| Name: | Xxxxx X. Xxxxxxxx | |||
| Title: | Executive Vice President General Counsel & Secretary |
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Signature Page — Director Designation Agreement
