[EXECUTION COPY]
REGISTRATION AND SHAREHOLDER
RIGHTS AGREEMENT
This Registration and Shareholder Rights Agreement (this "Agreement") is
made as of the 31st day of December, 1998, by Audio Book Club, Inc., a Florida
corporation ("Buyer"), The Columbia House Company, a New York general
partnership "Seller"), WCI Record Club Inc. ("WCI") and Sony Music Entertainment
Inc. ("Sony").
WHEREAS, Buyer and Seller have entered into an Asset Purchase Agreement,
dated as of the 30th day of December, 1998 (the "Asset Purchase Agreement");
WHEREAS, pursuant to the Asset Purchase Agreement, Buyer is delivering to
Seller, or certain of its Affiliates (as defined below), (i) 325,000 of its
unregistered shares (the "Closing Shares") of common stock, no par value (the
"ABC Common Stock"), and (ii) a warrant to purchase 100,000 shares of ABC Common
Stock (the "Warrant Shares," and, together with the Closing Shares, the
"Shares"), as set forth in Annex A hereto, in partial satisfaction of the
Purchase Price, as defined therein; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Asset Purchase Agreement that Buyer grant to Seller the
registration rights and other rights set forth herein with respect to the Shares
and that the transfer of the Shares be subject to the understandings and
limitations set forth herein.
Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the Asset Purchase Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Certain Definitions. Unless otherwise defined herein, capitalized terms
used herein and in the recitals above shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under direct or indirect common control with,
such Person. For the purposes of this definition "control," when used with
respect to any specified Person, shall mean the power to direct or cause the
direction of the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities or partnership or other ownership
interests, by contract or otherwise; and the terms "controlling" and
"controlled" shall have the meanings correlative to the foregoing.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Effectiveness Period" means the period commencing with the date hereof and
ending on the date that all Shares have been disposed of by the Stockholders (as
defined below).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Market Price," with respect to any date, means the closing price per share
of ABC Common Stock for the trading day immediately preceding such date. The
closing price for each such day shall be the last sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the principal securities exchange on
which the shares of ABC Common Stock are listedolding a majority of the Shares
(the "Majority Stockholders"), or, if such agreement cannot be reached, the
Board of Directors of Buyer, together with the Majority Stockholders shall
select an Independent Financial Expert who shall determine the fair market value
of such shares. In the event that Buyer and the Majority Stockholders are unable
to agree on the Independent Financial Expert within fifteen (15) days after the
request by the Majority Stockholders, each of Buyer and the Majority
Stockholders shall select an Independent Financial Expert and these two shall
select a third Independent Financial Expert, and the determination of fair
market value by such third Independent Financial Expert shall be final and
binding. The fees and expenses of any of the Independent Financial Experts
retained pursuant to this section shall be paid by Buyer on the first occasion
on which such Independent Financial Experts are retained and then, thereafter,
the fees and expenses of any of the Independent Financial Experts shall be split
equally among Buyer and the Stockholders.
"Permitted Transfer" means a transfer of Registrable Shares by Seller, WCI
or Sony to any Affiliate agreeing to become a party hereto and to be bound by
the terms hereof.
"Registration Expenses" means the expenses described in subsection 7.4.
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"Registrable Shares" means (i) any Shares held by Seller, WCI or Sony or an
Affiliate thereof from time to time as to which registration pursuant to the
Securities Act is required for public sale without limitation on volume or
otherwise, (ii) any other equity securities of Buyer issued in respect of any of
the Shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events) and (iii) any and all equity securities of
Buyer or any successor into which such shares may be converted; provided,
however, that shares of ABC Common Stock that are Registrable Shares shall cease
to be Registrable Shares (w) when a Registration Statement filed pursuant to the
Securities Act covering such shares of ABC Common Stock has been declared
effective and they have been disposed of pursuant to such effective Registration
Statement, (x) upon any sale pursuant to Section 4(l) of the Securities Act or
Rule 144 or Rule 144A under the Securities Act, (y) at such time as they are
eligible for sale pursuant to Rule 144 under the Securities Act without
limitation as to the amount of securities to be sold or (z) when such shares are
available for sale in the opinion of counsel to Buyer reasonably satisfactory to
Seller, WCI and/or Sony in a single transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are or may be removed
upon the consummation of such sale.
"Registration Statement" means a registration statement filed pursuant to
the Securities Act (as defined herein) by the Buyer with the Commission for a
public offering and sale of securities of Buyer (other than a registration
statement on Form S-8 or Form S-4, or their successors, or any other form for a
limited purpose, or any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Stockholders" means Seller, WCI or Sony, or any Affiliate thereof, and any
persons or entities to whom the rights granted hereunder are transferred
pursuant to a Permitted Transfer or otherwise in accordance with the terms of
this Agreement, provided that, in the case of a transfer (other than a Permitted
Transfer), the transferee acquires no less than 50% of the total number of
Shares.
2. Restrictions on Transfer.
2.1. Sale or Transfer of Shares; Legend.
(a) The Registrable Shares shall not be sold or transferred other than (i)
pursuant to a Permitted Transfer, (ii) in accordance with the procedure set
forth in Section 3 hereof, provided that, in the case of a transfer other
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than to Buyer, Buyer first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to Buyer, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act;
provided that (a) if requested by a Stockholder, Buyer shall use its reasonable
best efforts to cause (at Stockholders' expense) its counsel to furnish such
opinion and (b) in case of a registered public offering, no such opinion shall
be required, or (iii) as provided in Section 6 hereof.
(b) Each certificate representing the Registrable Shares shall bear a
legend consistent with the provisions of paragraph (a) of this Section 2.1.
2.2. Rights. The registration and other rights granted herein to Seller,
WCI or Sony are not transferable and may not be assigned by Seller, WCI or Sony,
except that Seller, WCI or Sony may assign the rights granted herein upon any
Permitted Transfer so long as, in any such case, the transferee agrees to be
bound by the terms of this Agreement.
3. First Offer Right.
3.1. Prior to making any transfer, sale or other disposition of any Shares
(other than pursuant to: (i) a public offering; (ii) a Permitted Transfer; or
(iii) Rule 144 under the Securities Act), the Stockholder shall deliver a
written notice of the proposed disposition ("Offer Notice") to Buyer, which
shall state (i) the number of Shares proposed to be transferred, (ii) the
proposed purchase price and (iii) all other material terms and conditions of
such transfer. During the period commencing on the date that the Buyer receives
the Offer Notice and expiring at the end of business on the tenth (10th)
Business Day following such date (the "Election Period"), Buyer may elect to
purchase all, but not less than all, of the Shares subject to the Offer Notice
(the "Offered Shares") for cash at the purchase price set forth in the Offer
Notice (the "Offer Price"), by delivering written notice of exercise to the
Stockholder (the "Buyer Notice") and Seller, WCI or Sony, as appropriate, shall
sell to Buyer the Offered Shares at such price if Buyer elects to exercise its
rights under this Section 3.1.
3.2. The closing of the Buyer's rights to purchase the Offered Shares shall
be held at the New Jersey offices of Buyer, or if no such offices exists, at
some other location mutually agreed upon by the Buyer and the holders of a
majority of the Offered Shares, at 11:00 a.m., local time, no later than the
fifth (5th) Business Day after delivering the Buyer Notice to Stockholder (the
"Offered Shares Closing"). At the Offered Shares Closing, the Stockholder shall
deliver certificates representing the Shares, duly endorsed for transfer and
accompanied by all requisite transfer taxes, if any, and such Shares shall be
free and clear of any liens and the Stockholder shall so represent and warrant
on behalf of itself, and further represent and warrant that each of the
Stockholders is the sole beneficial and record owner of the Shares owned by it.
At the Offered Shares Closing, Buyer shall deliver to each
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Stockholder, by wire transfer in immediately available funds, payment for all of
the Offered Shares or shall make other arrangements for payment satisfactory to
the Stockholder. At the Offered Shares Closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
3.3. If Buyer does not elect to purchase the Offered Shares during the
Election Period, the Stockholder may, within ninety (90) days after the date of
the Offer Notice, transfer such Offered Shares in accordance with the Offer
Notice, subject to the other restrictions on transfer set forth herein. If
Stockholder does not complete the disposition within such period, the Offered
Shares again become subject to the provisions of Section 3.1.
4. Shelf Registration Rights.
4.1. Shelf Registrations.
(a) Buyer shall prepare and file with the Commission, as soon as
practicable but in any event no later than forty-five (45) days following the
date hereof (the "Filing Date"), a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 of the Securities Act (or any
successor rule or similar provision then in effect) (a "Shelf Registration")
registering the resale from time to time by the Stockholders thereof of all of
the Registrable Shares (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Shares for resale by the Stockholders. Buyer
shall use its best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act as soon as practicable (and shall
promptly notify in writing the Stockholders once the Initial Shelf Registration
has been declared effective) and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the earlier of the: (i)
expiration of the Effectiveness Period; (ii) second anniversary (plus any
Blackout Period, as defined below) from the date the Initial Shelf Registration
covering all of the Registrable Shares has been declared effective under the
Securities Act; (iii) date all of the Registrable Shares part of the Initial
Shelf Registration are sold; or (iv) date a Subsequent Shelf Registration (as
defined below) covering all of the Registrable Shares has been declared
effective under the Securities Act. Any holder of Registrable Shares shall be
permitted to withdraw all or any part of the Registrable Shares from a Shelf
Registration Statement at any time prior to the effective date of such Shelf
Registration Statement.
(b) A registration under this section will not be deemed to have been
effected as a Shelf Registration Statement unless the Shelf Registration
Statement with respect thereto has been declared effective by the Commission and
Buyer has complied in all material respects with this Agreement with respect
thereto; provided, however, that if the Initial Shelf Registration (or any
Subsequent Shelf Registration) is interfered with by any stop order, injunction
or
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other order or requirement of the Commission or any other governmental agency or
court, Buyer shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof (including, without limitation, amend
the Shelf Registration in a manner reasonably expected to obtain the withdrawal
of the order suspending the effectiveness thereof), and such Initial Shelf
Registration (or any Subsequent Shelf Registration) will be deemed not to have
been effective during the period of such interference until the offering of
Registrable Shares pursuant to such Shelf Registration Statement (or Subsequent
Shelf Registration Statement) may legally resume (the "Blackout Period").
(c) Notwithstanding the foregoing paragraph, if prior to the second
anniversary (plus any Blackout Period) from the date the Initial Shelf
Registration covering all of the Registrable Shares has been declared effective
under the Securities Act Buyer has failed to obtain the withdrawal of the order
suspending the effectiveness within 60 days of such cessation of effectiveness,
Buyer shall file an additional Shelf Registration covering all of the
Registrable Shares (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, Buyer shall use its best efforts to cause the Subsequent
Shelf Registration to be declared effective as soon as practicable after such
filing and to keep such Registration Statement continuously effective until the
earlier of the: (i) expiration of the Effectiveness Period; (ii) second
anniversary from the date the Initial Shelf Registration covering all of the
Registrable Shares has been declared effective under the Securities Act (plus
any Blackout Period); (iii) date all of the Registrable Shares part of the
Subsequent Shelf Registration are sold; or (iv) date another Subsequent Shelf
Registration covering all of the Registrable Shares has been declared effective
under the Securities Act. If the registration required under this Section 4 is
deemed not to have been effected then Buyer shall continue to be obligated to
effect a registration statement pursuant to this Section 4.
(d) Buyer shall supplement and amend any Shelf Registration Statement filed
pursuant to this section if: (i) required by the rules, regulations or
instructions applicable to the registration form used by Buyer for such Shelf
Registration; (ii) required by the Securities Act; or (iii) reasonably requested
by the holders of a majority of the Registrable Shares included in the Shelf
Registration Statement concerned.
(e) As far in advance as practical (but not later than five (5) days)
before filing a Shelf Registration Statement covering any of the Registrable
Shares or any supplement or amendment thereto, Buyer will furnish to the
Stockholders (and their counsel) copies of reasonably complete drafts of all
such documents proposed to be filed (including exhibits), and any Stockholder
shall have the reasonable opportunity to object to any information pertaining
solely to such holder that is contained therein and Buyer will make the
corrections reasonably requested by such holder with respect to such information
prior to filing any such Shelf Registration Statement or amendment thereto;
provided that if Buyer receives no
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response on the third day after furnishing Stockholders (and their counsel)
copies of reasonably complete drafts of all such documents proposed to be filed
(including exhibits), Stockholders (and their counsel) will be deemed to have no
comments on the documents concerned.
(f) Each holder of Registrable Shares wishing to sell Registrable Shares
pursuant to a Shelf Registration and related Prospectus agrees to deliver and
execute such questionnaires and otherwise provide such information, reasonably
requested by Buyer in writing (at least ten (10) days prior to the Shelf
Registration Statement concerned being filed) to prepare, file and gain
effectiveness of the Shelf Registration, at least five (5) days prior to the
Shelf Registration Statement concerned being filed.
(g) In connection with this Section 4, neither of the Major Stockholders
(as defined below), individually or in the aggregate, shall sell any shares of
ABC Common Stock on any national securities exchange in excess of the number of
shares permitted to be sold by a single holder of restricted stock of Buyer
pursuant to Rule 144(e)(1) of the Securities Act until the Stockholders are able
to dispose of the Registrable Shares included in the Initial Shelf Registration
(i.e., the Initial Shelf Registration has been declared effective under the
Securities Act and the Stockholders have been notified in writing of such
effectiveness and have been provided with the number of copies of prospectuses
and prospectus supplements that the Stockholders have reasonably requested
related to such Shelf Registration).
(h) In connection with this Section 4, Buyer shall not sell any shares of
ABC Common Stock on any national securities exchange until the Stockholders are
able to dispose of the Registrable Shares included in the Initial Shelf
Registration (i.e., the Initial Shelf Registration has been declared effective
under the Securities Act and the Stockholders have been notified in writing of
such effectiveness and have been provided with the number of copies of
prospectuses and prospectus supplements that the Stockholders have reasonably
requested); provided, however, if a registration statement filed by Buyer has
been declared effective under the Securities Act (the "Buyer Registration
Statement") prior to the date (i) the Initial Shelf Registration has been
declared effective under the Securities Act and (ii) the Stockholders have been
notified in writing of such effectiveness and have been provided with the number
of copies of prospectuses and prospectus supplements that the Stockholders have
reasonably requested related to such Shelf Registration, Buyer agrees to
repurchase from the Stockholders an aggregate of 32,500 of the Closing Shares,
at a purchase price equal to the price the shares of ABC Common Stock are sold
to the public on the closing date of any such transaction from the proceeds of
the sale of ABC Common Stock by Buyer pursuant to the Buyer Registration
Statement. Buyer shall not file a registration statement prior to the filing of
the Initial Shelf Registration other than a registration statement on Form S-8.
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5. Put Rights of the Parties.
(a) For a fifteen (15) Business Day period beginning on the six year
anniversary of the Closing Date (the "Put Exercise Period"), Buyer agrees to
repurchase from any one or more of the Stockholders an aggregate of 325,000 of
the Closing Shares (less the number Closing Shares which are repurchased by
Buyer pursuant to Section 4(h) herein, if any), at a purchase price of $15 per
share (the "Stockholder Put Right"), provided that any Stockholder exercising
such right delivers written notice (the "Put Notice") anytime within the Put
Exercise Period to Buyer stating that such Stockholder is exercising the
Stockholder Put Right.
(b) The put rights set forth in Section 5(a) above with respect to the
325,000 Closing Shares shall lapse and become null and void upon the following
conditions. If, for any period of ten (10) consecutive trading days (not
including days during which the "lock-up" referred to in Section 7.8 is in
effect) (the "Measurement Period"), at any time as long as either (i) a
Registration Statement (including a Shelf Registration) that would allow the
sale of the Closing Shares by the Stockholders has been filed and remains
effective during the Measurement Period or (ii) Buyer has offered in writing to
register the sale of the Closing Shares by the Stockholders pursuant to Section
7.2 hereof, such offer has been declined in writing by the Stockholders and the
Registration Statement with respect to such offer has been filed and remains
effective during the Measurement Period, the ABC Common Stock is trading on the
principal securities exchange on which it is listed or admitted for trading at a
Market Price at or above $15 per share, then the Stockholder Put Right shall
lapse, and the number of Closing Shares with respect to which each Stockholder
may exercise the Stockholder Put Right shall be reduced pro rata, with respect
to that aggregate number of Closing Shares set forth in the right hand column
below, opposite the highest level of average daily trading volume (the
"Threshold") exceeded during the Measurement Period, set forth in the left hand
column below, but only to the extent that the actual daily trading volume on at
least three (3) trading days during the Measurement Period equals or exceeds the
Threshold. Notwithstanding the foregoing, if the number of Shares covered (or
offered to be covered) by any Registration Statement referred to above is less
than the number of Closing Shares, then the Stockholder Put Right shall lapse
with respect to no more than such lesser number of Closing Shares.
(c) In addition, to the extent any Closing Shares remain subject to the
Stockholder Put Right subsequent to any lapsing as determined above, then for
each day during the ten (10) consecutive trading days following the Measurement
Period (not including any days during which the "lock-up" is in effect or a
Registration Statement covering the Closing Shares is not effective) that the
ABC Common Stock is trading on the principal securities exchange on which it is
listed or admitted for trading at a Market Price at or above $15 per share and
the actual daily trading volume for ABC Common Stock exceeds any Threshold set
forth in the left hand column below, then the Stockholder Put Right shall lapse,
and the number of
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Closing Shares with respect to which the Stockholders may exercise the
Stockholder Put Right shall be further reduced, by an additional number of
Closing Shares equal to seven and one half percent (7 1/2%) of the number of
Closing Shares set forth in the right hand column opposite such Threshold.
Notwithstanding the foregoing, if the number of Shares covered (or offered to be
covered) by any Registration Statement referred to in clause (d) above is less
than the Threshold, then the Stockholder Put Right shall lapse with respect to
no more than such lesser number of Closing Shares.
================================================================================
Average Daily Trading Volume Number of Puts Lapsing
--------------------------------------------------------------------------------
40,000 47,500
--------------------------------------------------------------------------------
65,000 95,000
--------------------------------------------------------------------------------
90,000 142,500
--------------------------------------------------------------------------------
120,000 190,000
--------------------------------------------------------------------------------
150,000 237,500
--------------------------------------------------------------------------------
175,000 285,000
--------------------------------------------------------------------------------
200,000 325,000
================================================================================
(d) The closing of the Stockholder Put Right exercised by the Stockholders
pursuant to this Section 5 shall be held at the New Jersey offices of Buyer, or
if no such offices exists, at some other location mutually agreed upon by the
Buyer and a majority of the Stockholders holding a majority of shares as to
which the Put Right has been exercised, at 11:00 a.m., local time, no later than
ten (10) Business Days after delivery by the Stockholders of the relevant Put
Notice to Buyer (the "Closing"). At the Closing, each Stockholder exercising a
Stockholder Put Right shall deliver certificates representing the Closing Shares
covered by the relevant Put Notice, duly endorsed for transfer and accompanied
by all requisite transfer taxes, if any, and such Closing Shares shall be free
and clear of any liens and each Stockholder shall so represent and warrant on
behalf of itself, and further represent and warrant that each of the
Stockholders is the sole beneficial and record owner of the Closing Shares owned
by it. At the Closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate.
(e) At the Closing, Buyer shall deliver to each Stockholder exercising a
Stockholder Put Right, by wire transfer in immediately available funds, payment
for all of the Closing Shares covered by such Stockholder's Put Notice or shall
make other arrangements for payment satisfactory to such Stockholder. Any
failure by Buyer to make any payment in respect of the Stockholder Put Right
when due shall be a breach of this Agreement and, without limitation of other
rights or remedies available to the Stockholders at law or in equity, to the
extent Buyer was prohibited from making such payment pursuant to FLA. STAT. XXX.
ch. 607.06401
9
(or any successor rule or similar provision then in effect), subject to Sections
5(f) and (g) below, Buyer shall make such payment(s) on the first date(s) that
it is lawfully permitted to do so, together with interest thereon at the rate of
10% per annum, compounded quarterly.
(f) Buyer represents and warrants that it has not entered into any
agreement or arrangement pursuant to which Buyer is restricted in its ability to
make any payment in respect of the Stockholder Put Right other than as set forth
in the: (i) Credit Agreement dated as of December 31, 1998 among Buyer, the
banks, financial institutions and other institutional lenders named therein (as
initial lenders) and Fleet National Bank, as Initial Issuing Bank, Swing Line
Bank and Administrative Agent (the "Credit Agreement"); and (ii) $15.0 million
principal amount 9.0% Convertible Senior Subordinated Promissory Note of Buyer
due December 31, 2004 (the "Convertible Note").
(g) Buyer covenants and agrees that, at all times between the date hereof
(the "Execution Date") until the earlier of the (i) expiration of the Put
Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) when the Stockholders have disposed of all of the Registrable Shares, it
shall not enter into any agreement or arrangement pursuant to which Buyer will
be restricted in its ability to make any payment in respect of the Stockholder
Put Right other than as set forth in (i) the Credit Agreement, (ii) any
extension, refinancing or replacement of, or amendment or modification to, the
Credit Agreement, (iii) the Convertible Note, (iv) any indebtedness incurred to
repay the Convertible Note or (v) indebtedness, incurred in connection with
future acquisitions, provided, that in the case of clause (v) above, such
indebtedness shall only restrict Buyer's ability to make payments in respect of
the Stockholder Put Right if Buyer is in default of such indebtedness
immediately prior to such payment or if such payment would cause a default under
such indebtedness.
(h) The Put Notice shall be delivered to Buyer in accordance with Section
7.6 herein.
6. Additional Rights of the Parties.
(a) (A) If, at any time prior to the earlier of the (i) expiration of the
Put Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) expiration of the Effectiveness Period, either Xxxxxx Xxxxxxx or X.
Xxxxxxx Irrevocable ABC Trust (the "Major Stockholders"), acting individually or
in concert ("Selling Major Stockholders"), shall desire to sell or otherwise
transfer in a bona fide private sale 50% or more of the ABC Common Stock legally
and/or beneficially owned by the Major Stockholders (provided that the transfer
of the Convertible Note and the warrants issued pursuant to the Warrant
Agreement dated as of December 31, 1998 between Buyer and Xxxxxx Xxxxxxx to an
unrelated third party bona fide purchaser of the Convertible Note or the
refinancing or replacement thereof
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shall be excluded from the provision of this Section 6 in all respects), then
the Selling Major Stockholders shall refrain from effecting such transaction
unless, prior to the consummation thereof, the Stockholders shall have been
afforded the opportunity to join in such sale on a pro rata basis, as
hereinafter provided in Section 6(a)(B).
(B) Prior to consummation of any bona fide private sale of shares of ABC
Common Stock described in this Section 6(a)(B), the Selling Major Stockholders
shall deliver a written notice (the "Sale Notice") to each of the Stockholders,
specifying in reasonable detail the number of shares proposed to be transferred,
the identity of the potential transferee(s) and the terms and conditions of the
transfer; provided, however, that this Section shall not apply to (i) any
transfer by any Major Stockholder of any shares to any of the employees of the
Buyer or any of its subsidiaries, other than in connection with any
extraordinary transaction (e.g., a management buy-out of Buyer), (ii) any
transfer of securities made by any Major Stockholder to members of his immediate
family, (iii) any transfer by any Major Stockholder to any other Major
Stockholder, or to any of their affiliates, (iv) any transfer by any Major
Stockholder pursuant to a pledge agreement with a bank or other financial
institution or (v) any transfer made by any Major Stockholder upon his death to
his estate. The Stockholders may elect to participate in the proposed transfer
by delivering written notice to the Selling Major Stockholder(s) within five (5)
days after receipt of the Sale Notice. If any Stockholder elects to participate
in such transfer pursuant to the terms hereof, such Stockholder shall be
entitled to sell in the proposed transfer, at the same price and on the same
terms, a number of Closing Shares equal to the product of (x) a fraction, the
numerator of which is the number of Closing Shares owned by such Stockholder and
the denominator of which is the total number of shares of ABC Common Stock
beneficially owned by the Selling Major Stockholder(s) on a fully diluted basis
and all of the other Stockholders electing to participate in the transfer
multiplied by, (y) the total number of shares of Common Stock to be transferred
by the Selling Major Stockholder(s) in the proposed transfer.
(b) If Buyer effects, or is a party to, any consolidation, merger or sale,
transfer or other disposition of all or substantially all of the property,
assets or business of Buyer at any time between the Closing Date and the earlier
of the (i) expiration of the Put Exercise Period; (ii) the lapsing of all of the
Stockholders Put Rights; or (iii) expiration of the Effectiveness Period
(collectively, a "Merger Event") (other than any Merger Event: (A) involving
only Buyer and one or more of its Affiliates so long as the Stockholders get:
(1) consideration of the same type and amount per share as the controlling
shareholders of Buyer, including, without limitation, the Major Stockholders;
and (2) rights are not adversely affected by any such event; or (B) effected
with the consent of Fleet National Bank, as administrative agent, following an
Event of Default and foreclosure by Fleet National Bank, under the Credit
Agreement), the Stockholders shall have the right to receive the greater of the
(i) consideration per share received by the stockholders of Buyer or (ii) $15.00
per share. As promptly as possible, but, in any event, at least five (5)
Business
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Days after the occurrence of a Merger Event, Buyer shall deliver to each
Stockholder written notice of such event in accordance with Section 7.6 herein.
(c) From the date hereof until the earlier of the (i) expiration of the Put
Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) expiration of the Effectiveness Period, Buyer shall not repurchase, in one
or more private transaction(s), shares of ABC Common Stock outstanding on the
Execution Date, except that Buyer may repurchase (i) up to 200,000 shares of ABC
Common Stock and (ii) those shares of ABC Common Stock that Buyer has committed
to repurchase prior to the date hereof, as set forth on Schedule 4.7 to the
Asset Purchase Agreement.
(d) From the Execution Date until the earlier of the (i) expiration of the
Put Exercise Period; (ii) the lapsing of all of the Stockholders Put Rights; or
(iii) expiration of the Effectiveness Period, neither the Major Stockholders nor
Buyer shall purchase any shares of ABC Common Stock on any national securities
exchange, unless such Major Stockholder(s) or Buyer, as the case may be, shall
first offer to repurchase an equal number of Shares from the Stockholders at the
Market Price on such offer date.
7. Registration Rights.
7.1. Required Registrations.
(a) In the event that the Initial Shelf Registration has not been declared
effective by the 180th day after the date hereof or has ceased to be effective
for a period of 20 consecutive days, or any time after the second anniversary
(plus any Blackout Period) of the effectiveness of the Initial Shelf
Registration (or any Subsequent Shelf Registration), the Stockholder(s) holding
in the aggregate at least the greater of (i) 51% of the then Registrable Shares
or (ii) 100,000 Registrable Shares shall have the right to make a written
request that Buyer effect the registration of the number of Registrable Shares
that such Stockholder(s) (the "Requesting Party"); provided, however, that, only
one (1) request for registration may be made under this subsection 7.1(a). The
Buyer will thereupon file a Registration Statement with respect to, and use its
best efforts to cause to be declared effective, at the earliest possible date,
the registration under the Securities Act, including, without limitation, by
means of a Shelf Registration if so requested in such request (but only if Buyer
is then eligible to use such a Shelf Registration), of the Registrable Shares
which Buyer has been so requested to register by the Requesting Party.
(b) A registration requested pursuant to this Section 7.1 shall not be
deemed to have been effected (i) unless a Registration Statement with respect
thereto has become effective and remained effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Shares covered by such Registration Statement until the date twelve
12
(12) months from the effective date of such Registration Statement; or (ii) if
after it has become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court, prior to the end of the twelve (12) month period
specified in clause (i) above, for any reason not attributable solely to the
Requesting Party and has not thereafter become effective.
(c) In the event such registration is underwritten (which underwriting
Buyer shall have no obligation to provide except as set forth in Section 7.1(d)
below), the right of other Stockholders to participate shall be conditioned on
such Stockholders' participation in such underwriting. If the managing
underwriter, if any, of any underwritten offering shall advise Buyer (and Buyer
shall so advise each Stockholder of such advice in writing) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, then Buyer will include
in such registration, to the extent of the number of Registrable Shares which
Buyer is so advised can be sold in (or during the time of) such offering at a
price acceptable to each Stockholder, the number of Registrable Shares requested
by each Stockholder to be included in such registration that, in the opinion of
such managing underwriter, can be sold, such amount to be allocated among all
such holders of Registrable Shares pro rata on the basis of the respective
number of Registrable Shares each such holder has requested to be included in
such registration, provided that if the number of Registrable Shares that such
managing underwriter advises can be sold in such offering is less than all the
Registrable Shares that the Requesting Party requested be included, such
Requesting Party may withdraw its written request made pursuant to Section
7.1(a) and such written request will not be considered a request for
registration for the purposes of Section 7.1(a).
(d) If Buyer grants any other person or entity the right to require Buyer
to effect a registration statement registering the distribution by such persons
or entities of securities of Buyer by means of an underwriting, or has granted
any other person or entity such rights, Buyer must promptly advise Seller in
writing. Any time after receipt of such notice, the Requesting Party initiating
the registration pursuant to this Section 7.1 (in accordance with Section 7.1(a)
above) may require Buyer to effect a registration statement registering the
distribution of the Registrable Shares by means of an underwriting (an
"Underwritten Demand") by delivering to Buyer written notice (the "Underwritten
Demand Notice"). Upon receipt of any such Underwritten Demand Notice, Buyer
shall promptly give written notice of such proposed registration to all
Stockholders. Such Stockholders shall have the right, by giving written notice
to Buyer within ten (10) Business Days after the Buyer provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such Stockholders may request in such notice of election and Buyer shall, as
expeditiously as possible, use its best efforts to effect the registration of
such Registrable Shares. In connection with any underwritten offering, Buyer
shall have the right to select the managing underwriter with respect to the
offering;
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provided that such managing underwriter shall be a nationally recognized firm
reasonably acceptable to both Buyer and the holders of a majority of the
Registrable Shares requested to be sold in such underwritten offering.
(e) If at the time of any request to register Registrable Shares pursuant
to Sections 7.1(a) or (d) hereof, Buyer is engaged or has fixed plans to engage
within seventy-five (75) days of the time of the request in a registered public
offering as to which the Stockholders may include Registrable Shares pursuant to
Section 7.2 hereof, or is engaged in any other material activity that, in the
good faith determination of Buyer's Board of Directors, would be adversely
affected by the requested registration to the detriment of Buyer, then Buyer
shall give written notice (the "Delay Notice") of such determination to each
Requesting Party. Such delay or discontinuance shall be for the period Buyer
determines on the basis provided above in good faith is necessary or desirable,
but in no event greater than 150 days from delivery by Buyer of the Delay
Notice, provided that Buyer shall have the right to only one Delay Notice each
year and no more than 180 days of delay or discontinuance in any two year
period. Buyer shall notify in writing the Requesting Party of the expiration of
the period of delay or discontinuance. Following such delay or discontinuance,
Buyer shall promptly cause the Registrable Shares to be registered unless,
within twenty (20) Business Days of receipt of notice from Buyer, the Requesting
Party withdraws its written request made pursuant to Section 7.1(a), in which
case, such written request will not be considered a request for registration for
the purposes of Section 7.1(a).
7.2. Incidental Registration.
(a) At any time following the Closing Date, when Buyer proposes to file a
Registration Statement (other than pursuant to Section 7.1 hereof), it will give
written notice to all Stockholders and, upon the written request of a
Stockholder or Stockholders given within ten (10) Business Days after Buyer
provides such notice (which request shall specify the Registrable Shares
intended to be disposed of by such holder), Buyer shall, subject to subsections
7.2(b) and 7.2(c) hereof, use its best efforts to cause all Registrable Shares
that Buyer has been requested by such Stockholder or Stockholders to register to
be registered under the Securities Act; provided, however, if, at any time after
giving such written notice of its intention to register any securities and prior
to the effective date of the Registration Statement filed in connection with
such registration, Buyer shall determine for any reason not to register such
securities, Buyer may, at its election, give written notice of such
determination to each holder of Registrable Shares who shall have made a request
for registration as hereinabove provided and thereupon Buyer shall be relieved
of its obligation to register any Registrable Shares in connection with this
Section 7.2 (but not from its obligation to pay any expenses in connection
therewith).
(b) In connection with any offering under this Section 7.2 hereof involving
an underwriting, Buyer shall not be required to include
14
any Registrable Shares in such offering unless the holders thereof accept the
terms of the underwriting as agreed upon between Buyer and the underwriters
selected by it and execute an underwriting agreement reflecting such terms
(provided that such terms must be consistent with this Agreement).
(c) If a registration pursuant to this Section 7.2 involves an underwritten
offering and the managing underwriter advises the issuer that, in its opinion,
the number of securities proposed to be included in such registration should be
limited due to market conditions, then, after having included in such
registration any shares being registered in satisfaction of "demand"
registration rights of any person, Buyer shall include in such registration, to
the extent of the number of Registrable Shares which Buyer is so advised by the
managing underwriter in its professional judgment can be sold without materially
adversely impacting the terms of the underwriting in (or during the time of)
such offering at a price acceptable to each Stockholder, the number of
Registrable Shares requested by each Stockholder to be included in such
registration that, in the opinion of such managing underwriter, can be sold,
such amount to be allocated among all such holders of Registrable Shares pro
rata on the basis of the respective number of Registrable Shares each such
holder has requested to be included in such registration. If any third party
notifies Buyer of its intent to exercise a "demand" registration right which
would have the effect of reducing the number of Registrable Shares to be
registered pursuant to the preceding sentence, then, promptly upon receipt of
such notice, Buyer shall notify the Stockholders requesting registration of such
demand and, if all of the other conditions set forth in Section 7.1 are met,
such Stockholders may thereupon elect to exercise their "demand" registration
rights pursuant to Section 7.1 hereof in lieu of their "piggyback" registration
rights pursuant to this Section 7.2. No third party shall be granted any
registration rights superior to the rights granted under this Agreement.
7.3. Registration Procedures. If and whenever Buyer is required by the
provisions of this Agreement to use its efforts to effect the registration of
any of the Registrable Shares under the Securities Act (including, without
limitation, pursuant to Section 4 herein), Buyer shall, except as otherwise
specifically set forth in Section 4 herein:
(a) prepare and, in case of any registration effected pursuant to Section
7.1 hereof, subject to Section 7.1(e) hereof, within ninety (90) calendar days
after which the request for registration may be given to Buyer, file with the
Commission a Registration Statement with respect to such Registrable Shares and
use its best efforts to cause such Registration Statement to become and remain
effective (the "Registration Statement"); provided that as far in advance as
practical before filing such Registration Statement or any amendment thereto,
Buyer will furnish to the Stockholders that (whether pursuant to Sections 4, 7.1
or 7.2) have Registrable Shares included in such registration ("Requesting
Stockholders") copies of reasonably complete drafts of all such documents
proposed to be filed (including exhibits), and any Requesting Stockholder shall
have the reasonable opportunity (but
15
not less than five (5) Business Days) to object to any information pertaining
solely to such holder that is contained therein and Buyer will make the
corrections reasonably requested by such holder with respect to such information
prior to filing any such Registration Statement or amendment;
(b) as expeditiously as possible prepare and file with the Commission any
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus included in the Registration Statement
as may be necessary to keep the Registration Statement effective, in the case of
a firm commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it and, in the case of
any other offering, until the earlier of the sale of all Registrable Shares
covered thereby or twelve (12) months after the effective date thereof;
(c) as expeditiously as possible furnish to each Requesting Stockholder
such numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as the Requesting Stockholder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Shares owned by the
Requesting Stockholders;
(d) as expeditiously as possible use its commercially reasonable efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the Requesting
Stockholders shall reasonably request, and do any and all other acts and things
that may be necessary or desirable to enable the Requesting Stockholders to
consummate the public sale or other disposition in such states of the
Registrable Shares owned by the Requesting Stockholders; provided, however, that
Buyer shall not be required in connection with this paragraph (d) to qualify as
a foreign corporation or execute or file a general consent to service of process
in any jurisdiction;
(e) otherwise use its best efforts to cause Registrable Shares covered by
such Registration Statement to be registered with, or approved by, such other
governmental agencies or authorities as may be necessary to enable the
Requesting Stockholders to consummate the disposition of such Registrable
Shares, so long as the requirement of such approval relates to the business of
Buyer;
(f) notify each seller of such Shares, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus shall not contain an
untrue
16
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(g) during normal business hours and on reasonable advance notice and, make
available for inspection by any seller of Shares (who executes a confidentiality
agreement substantially to the effect set forth in Annex B hereto), any
underwriter participating in any disposition pursuant to such registration
statement (who executes a confidentiality agreement substantially to the effect
set forth in Annex B hereto) and any attorney, accountant or other agent
retained by any such seller or underwriter (each a "Person"), such financial and
other records, documents and properties of Buyer, and cause Buyer's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement (provided that any Person
who receives such financial and other records, documents and properties of Buyer
agrees to use reasonable precautions to keep confidential all non-public
information identified by Buyer as being confidential at the time the same is
delivered to such Person pursuant to this section);
(h) permit any holder of Shares which holder, in its reasonable judgment,
might be deemed to be an underwriter or a controlling person of Buyer, to
participate in the preparation of such registration or comparable statement and
to require the insertion therein of material, furnished to Buyer in writing,
which in the reasonable judgment of such holder and its counsel should be
included;
(i) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, Buyer shall use its reasonable best efforts promptly to obtain the
withdrawal of such order;
(j) provide a transfer agent and registrar for all such Registrable Shares
not later than the effective date of such registration statement;
(k) comply in all material respects with all applicable rules and
regulations of the Commission in connection with the Registration Statement;
(l) in the case of any underwritten offering, promptly enter into a
customary Underwriting Agreement reasonably acceptable to the Underwriter,
including, if applicable, the terms set forth in Section 7.1(d) hereof; and
(m) promptly notify the General Counsel and Chief Financial Officer of
Seller at the addresses set forth in Section 7.6 hereof (which
17
notification will be deemed to be notice to all Stockholders), and the
underwriter or underwriters, if any:
(A) when such Registration Statement or any prospectus used in connection
therewith, or any amendment or supplement thereto, (i) has been filed and (ii)
has become effective;
(B) of any written comments from the Commission with respect to any filing
referred to in clause (A), to the extent that such written comments are
substantive, and of any written request by the Commission for amendments or
supplements to such Registration Statement or prospectus;
(C) of the written notification to Buyer by the Commission of its
initiation of any proceeding with respect to the issuance by the Commission of,
or of the issuance by the Commission of, any stop order suspending the
effectiveness of such Registration Statement; and
(D) of the receipt by Buyer of any notification with respect to the
suspension of the qualification of any Registrable Shares for sale under the
applicable securities or blue sky laws of any jurisdiction.
If Buyer has delivered preliminary or final prospectuses to the Requesting
Stockholders and after having done so, the prospectus is amended to comply with
the provisions of the Securities Act or is amended or supplemented pursuant to
Section 7.3(b), Buyer shall promptly notify the Requesting Stockholders, the
Requesting Stockholders shall immediately cease making offers of Registrable
Shares and, if requested, return all prospectuses to Buyer. Buyer shall promptly
provide the Requesting Stockholders with revised prospectuses, to the extent
required by Section 7.3(b), and, following receipt of the revised prospectuses,
the Requesting Stockholders shall be free to resume making offers of the
Registrable Shares.
7.4. Allocation of Expenses. Buyer will pay all Registration Expenses of
all registrations under this Agreement; provided, however, that if a
registration under Section 7.1 hereof is withdrawn at the request of the
Requesting Stockholders (other than as a result of materially adverse
information concerning the business or financial condition of Buyer that is made
known to the Stockholders after the date on which such registration was
requested) and if the Requesting Stockholders elect not to have such
registration counted as a registration requested under Section 7.1 hereof, the
Requesting Stockholders shall pay the Registration Expenses of such registration
pro rata in accordance with the number of their Registrable Shares included in
such registration. For purposes of this Section 7.4, the term "Registration
Expenses" shall mean all expenses incurred by Buyer in complying with Section 6
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and expenses of counsel for Buyer, reasonable state Blue
Sky fees and expenses, and the expense of any special audit incident to or
required by any such
18
registration, and the fees and disbursements of Buyer's independent public
accountants, including the expenses of any "cold comfort" letters required by or
incident to such performance and compliance, provided that "Registration
Expenses" shall not include underwriting discounts and selling commissions,
non-accountable or accountable expense allowances, other brokerage fees and
transfer taxes relating to the Registrable Shares. The Requesting Stockholders
shall pay any underwriting discounts and selling commissions, non-accountable or
accountable expense allowances, other brokerage fees and transfer taxes relating
to the Registrable Shares, and any fees and expenses of any counsel to the
Stockholders or any Stockholder.
7.5. Indemnification and Contribution. In the event of any registration of
any of the Registrable Shares under the Securities Act pursuant to this
Agreement, Buyer will indemnify and hold harmless the Stockholders selling
Registrable Shares, each underwriter of such Registrable Shares, and each of
their respective directors and officers, and each other person, if any, who
controls such Stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act against any losses, claims, damages, or liabilities,
joint or several, to which such Stockholder, underwriter, director, officer or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws, or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement (or any amendment or supplement
thereto) under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus, or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement or prospectus, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and Buyer will
reimburse such Stockholder, underwriter, and each such controlling person for
its reasonable costs and expenses (including reasonable attorneys fees and
expenses) in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that Buyer will not be liable
in any such case to the extent that any such loss, claim, damage, or liability
(i) arises out of, or is based upon, any material untrue statement or omission
made in such Registration Statement, preliminary prospectus, or final
prospectus, or any such amendment or supplement in reliance upon, and in
conformity with, information furnished to Buyer in writing, by or on behalf of
any such Stockholder, underwriter, or controlling person, specifically for use
in the preparation thereof or (ii) is based solely upon, failure to give or
deliver a prospectus at, or prior to, written confirmation of sale.
In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, each Stockholder selling Registrable
Shares will indemnify and hold harmless Buyer, each of its directors and
officers and each underwriter (if any) and each person, if any, who controls
Buyer or any such underwriter within the meaning of the Securities Act or the
Exchange Act,
19
(collectively, "Buyer Indemnitees") against any losses, claims, damages, or
liabilities, to which Buyer, such directors and officers, underwriter, or
controlling person may become subject under the Securities Act, Exchange Act,
state securities or Blue Sky laws, or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such Stockholder furnished in writing to Buyer by or on
behalf of such Stockholder specifically for use in connection with the
preparation of such Registration Statement, prospectus, amendment, or
supplement.
Each party entitled to indemnification under this Section 7.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and provided, further, that the failure of any Indemnified Party to
give notice as provided herein, which failure is not prejudicial to the defense
of such claim or litigation, shall not relieve the Indemnifying Party of its
obligations under this Section 7.5. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall pay the fees and expenses of no more than one counsel to the
Indemnified Party approved by the Indemnifying Party if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigations, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior consent of the Indemnifying
Party, which consent shall be deemed to be given if not denied within five (5)
days of the Indemnified Party's submission of a request for such consent.
In order to provide for just and equitable contribution in circumstances
under which the indemnity contemplated by Section 7.5 hereof is for any reason
not available, the parties required to indemnify by the terms thereof shall
contribute to the
20
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement (collectively, "Losses") incurred by
Buyer, any seller of Registrable Shares and one or more of the underwriters,
except to the extent that contribution is not permitted under Section 11(f) of
the Securities Act. In determining the amounts which the respective parties
shall contribute, there shall be considered the relative fault of the
Indemnifying Party on the one hand and the Indemnified Party on the other hand
in connection with statements or omissions which resulted in such Losses, as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, the parties' relative knowledge
and access to information concerning the matter with respect to which the claim
was asserted, the opportunity to correct and prevent any statement or omission
and any other equitable considerations appropriate under the circumstances.
Buyer and each Person selling securities agree with each other that no seller of
Registrable Shares shall be required to contribute any amount in excess of the
amount such seller would have been required to pay to an Indemnified Party if
the indemnity under Section 7.5 hereof were available. Buyer and each such
seller agree with each other and the underwriters of the Registrable Shares, if
requested by such underwriters, that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation. For
purposes of this Section 7.5, each Person, if any, who controls an underwriter
within the meaning of the Securities Act shall have the same rights to
contribution as such underwriter, and each director and each officer of Buyer
who signed the Registration Statement, and each Person, if any, who controls
Buyer or a seller of Registrable Shares, shall have the same rights to
contribution as Buyer or a seller of Registrable Shares, as the case may be.
Notwithstanding anything herein the contrary, the rights and obligations
contained in this Section 7.5 shall survive any termination of this Agreement.
7.6. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering, Buyer agrees to enter into an underwriting agreement
containing customary representations and warranties with respect to the business
and operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including without
limitation customary provisions with respect to indemnification by Buyer of the
underwriters of such offering.
7.7. Information by Holder. Each holder of Registrable Shares included in
any registration shall furnish to Buyer such information regarding such holder
and the distribution proposed by such holder as Buyer may reasonably request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 6. Buyer shall not be
obligated to register any Registrable Shares pursuant to this Section 6 unless
Buyer has first received the foregoing information with respect to the holder or
holders thereof.
21
7.8. "Lock-Up" Agreement. Each holder of Registrable Shares holding
beneficial ownership of in excess of 2% of the outstanding shares of ABC Common
Stock (calculated under Rule 13d-3 of the Exchange Act) agrees, to the extent
reasonably requested in writing by Buyer in the event of a non-underwritten
"rights" offering to all existing stockholders or to the extent reasonably
requested in writing by an underwriter in the event of an underwritten offering
as to which the holder of such Registrable Shares had the right to cause such
Registrable Shares to be included, to execute a customary "lock-up" agreement to
defer the sale or distribution of all Registrable Shares (other than (i)
Registrable Shares included in any such offering and (ii) Shares proposed to be
sold in a non-public sale, so long as the prospective purchaser of such Shares
agrees in writing with the Buyer to be bound by the terms of this Agreement) for
a period of time (not to exceed ninety (90) days) following the effective date
of a registration statement of Buyer filed under the Securities Act, which
agreement, in each such case, shall also bind the executive officers and
directors of Buyer and the Major Stockholders and other stockholders holding
more than two percent (2%) of the then-outstanding capital stock of Buyer, on
terms and conditions substantially similar to those which shall apply to holders
of Registrable Shares.
8. Miscellaneous.
8.1. Violative Agreement. Buyer represents and warrants that it has not
entered into, and covenants that it shall not hereafter enter into, any
agreement or arrangement with respect to its securities which violates or
adversely effects the rights granted to the holders of Registrable Shares in
this Agreement.
8.2. Remedies. The parties hereto agree that if any party seeks to resolve
any dispute arising under this Agreement pursuant to a legal proceeding, the
prevailing party to such proceeding shall be entitled promptly to receive from
the other party, the fees and expenses (including reasonable attorneys fees and
expenses) incurred on the prevailing party's behalf in connection with such
proceedings.
8.3. Owners or Affiliates of Seller. Buyer acknowledges that the
obligations and liabilities of Seller arising out of this Agreement or any other
transaction contemplated hereby, whether arising before, on or after the Closing
Date and whether known or unknown, actual, fixed, contingent or otherwise, shall
not be binding upon, enforceable against or extend to the owners or Affiliates
of Seller (other than owners or Affiliates who are Stockholders) and that its
sole recourse is to the assets of Seller and not to the assets of the owners or
Affiliates of Seller (other than owners or Affiliates who are Stockholders).
8.4. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively),
22
only with the written consent of the Buyer and the Majority Stockholders;
provided, however, if the rights of any holder of Shares is adversely affected,
Buyer must obtain the written consent of such holder. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Shares then outstanding, each future holder of all such Shares, and Buyer.
8.5. Obligations of Stockholders. By exercising any rights hereunder, each
Stockholder shall be deemed to assume all obligations of a Stockholder hereunder
as though such Stockholder were a signatory hereto. Buyer may require any
Stockholder to execute an instrument whereby such Stockholder expressly assumes
all obligations of such Stockholder hereunder as a condition precedent to any
obligation of Buyer to such Stockholder hereunder.
8.6. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements among them concerning such subject matter and
may be modified only by a written instrument duly executed by each party hereto.
8.7. Notices. Any notice given pursuant to this Agreement to any party
hereto shall be deemed to have been duly given when mailed by registered or
certified mail, return receipt requested, or by overnight courier, or when hand
delivered as follows:
If to Seller, WCI, Sony or Stockholders:
The Columbia House Company
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: General Counsel
-and-
The Columbia House Company
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Chief Financial Officer
23
with a copy to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
1285 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
If to Buyer:
Audio Book Club, Inc.
00 Xxxxxxxxx Xxxxx
X.X. Xxx 0000
Xxxxxxxxxx, Xxx Xxxxxx 00000-0000
Attention: Xxxxxxx Xxxxxxx, Co-CEO
-and-
Audio Book Club, Inc.
0000 Xxxxxxxxx Xxxx, X.X. Xxxxx 000
X.X. Xxx 0000
Xxxx Xxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxxx, Co-CEO
with a copy to:
Xxxxxx & Carnelutti
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx X. Xxxxxxxx, Esq.
-and-
Xxxxxx Xxxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
or at such other address as either such party shall from time to time designate
by written notice, in the manner provided herein, to the other party hereto. All
24
references to days in this Agreement shall be deemed to refer to calendar days,
unless otherwise specified.
8.8. Waiver. Any waiver must be in writing, and any waiver by any party of
a breach of any provision of this Agreement shall not operate as or be construed
to be a waiver of any other breach of that provision or of any breach of any
other provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions will not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
8.9. Separability. If any provision of this Agreement is invalid, illegal
or unenforceable, such provision shall be ineffective to the extent, but only to
the extent of, such invalidity, illegality or unenforceability, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, unless such a construction would be unreasonable.
8.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.11. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York. Each party hereto
agrees that it shall bring any action or proceeding in respect of any claim
arising out of or related to this Agreement or the transactions contained in or
contemplated by this Agreement, whether in tort or contract or otherwise or at
law or in equity, exclusively in the United States District Court for the
Southern District of New York (the "Chosen Court") and (i) irrevocably submits
to the exclusive jurisdiction of the Chosen Court, (ii) waives any objection to
laying venue in any such action or proceeding in the Chosen Court and (iii)
waives any objection that the Chosen Court is an inconvenient forum or does not
have jurisdiction over any party hereto.
8.12. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their permitted successors and assigns.
[SIGNATURE PAGE FOLLOWS]
25
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COLUMBIA HOUSE COMPANY
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman and Chief Executive Officer
WCI RECORD CLUB INC.
By: /s/ Xxxx Xxxxxx
-------------------------------
Name: Xxxx Xxxxxx
Title: Vice President and Secretary
SONY MUSIC ENTERTAINMENT INC.
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Senior Vice President and Comptroller
AUDIO BOOK CLUB, INC.
By: /s/ Xxxxxx Xxxxxxx
-------------------------------
Name: Xxxxxx Xxxxxxx
Title: Chairman and Chief Executive Officer
26
ANNEX A
SHARES DISTRIBUTION SCHEDULE
Closing Shares Warrant Shares
-------------- --------------
The Columbia House Company.......... 225,000 0
WCI Record Club Inc................. 50,000 50,000
Sony Music Entertainment Inc........ 50,000 50,000
ii
ANNEX B
December __, 1998
CONFIDENTIALITY AGREEMENT
[Prospective Holder of Registrable Shares]
Re: Registration and Shareholder Rights Agreement dated as of
December __, 1998 among Audio Book Club, Inc., Fleet National Bank
and International Nederladen (US) Capital Corporation
Dear Sirs:
As a party to the above-referenced Registration and Shareholder Rights
Agreement (the "Agreement"), we have agreed with Audio Book Club, Inc. (the
"Company") pursuant to Section 7.3(g) of the Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Agreement.
As provided in said Section 7.3(g) thereof, we are permitted to provide
you, as a prospective holder of Registrable Shares (as defined in the
Agreement), with certain of such non-public information subject to the execution
and delivery by you, prior to receiving such non-public information, of a
Confidentiality Agreement in this form. Such information will not be made
available to you until your execution and return to us of this Confidentiality
Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (a) such information will not be used by you except in
connection with the proposed purchase mentioned above and (b) you shall use
reasonable precautions, in accordance with your customary procedures for
handling confidential information and in accordance with safe and sound
practices, to keep such information confidential, provided that nothing herein
shall limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to your counsel or to
counsel for any of the holders of Registrable Shares, and (iii) to regulatory
personnel, auditors or accountants; provided that in no event shall you be
obligated to return any materials furnished to you pursuant to this
Confidentiality Agreement.
iii
Would you please indicate your agreement to the foregoing by signing, at
the place provided below, the enclosed copy of this Confidentiality Agreement.
Very truly yours,
[Stockholder]
By:
------------------------------
The foregoing is agreed to
as of the date of this letter.
[Insert Name of Prospective
Holder of Registrable Shares]
By:
-----------------------------
iv
