SHAREHOLDERS' AGREEMENT
AGREEMENT made as of the 29th day of July, 1999 by and among XXXXX
XXXXXXXXX, an individual with a mailing address at 0 Xxxxx Xxxxx, Xxx Xxxxxxxx,
Xxx Xxxx 00000 ("AW"), XXXX XXXXXXXXX, an individual with a mailing address at 0
Xxxxx Xxxxx, Xxx Xxxxxxxx, Xxx Xxxx 00000 ("JW"), XXXXX XXXXXXXXX, an individual
with a mailing address at 00 Xxxx 0xx Xxxxxx, Xxx. 14M, New York, New York 10003
("DW"), XXXXX XXXXXXXXX, an individual with a mailing address at 0000 Xxxxx
Xxxx, Xxx Xxxxx, Xxxxxxxx 00000 ("PW"), XXXXXXXX XXXXXXXXX, an individual with a
mailing address at 0000 00xx Xxxxxx Xxxx, Xxxxxxx, Xxxxxxxxxx 00000 ("JonW") and
XXXX XXXXXX, an individual with a mailing address at 0000 Xxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 ("EK") (AW, JW, DW, PW, JonW and EK, each, a "Shareholder", and,
collectively, the "Shareholders") and CONCORD MERGER CORP., a Delaware
corporation (the "Company").
WHEREAS, the Shareholders are the principal shareholders and/or
management (or relatives thereof ) of Concord Fabrics Inc. ("Concord");
WHEREAS, the issued and outstanding capital stock of Concord not
held by the Shareholders is publicly traded;
WHEREAS, the Shareholders have organized the Company to hold their
shares of Concord capital stock, to purchase from the public the remaining
shares of Concord capital stock and to merge with Concord (the "Merger") all as
part of a going private transaction which would result in the Shareholders
becoming the sole shareholders of the surviving corporation
(the "Surviving Corporation");
WHEREAS, the Shareholders have determined that it is in their best
interest and in the best interest of the Company (and, after the Merger, the
Surviving Corporation) to provide for the continuity of ownership and
maintenance of control of the Company (and after the Merger, the Surviving
Corporation) as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the parties hereto hereby
agree as follows:
I. COMMON STOCK
1. Stock Exchange. Upon the delivery by each of the Shareholders of stock
certificates representing that number of shares of the Class A Common Stock, par
value $.50 per share, of Concord and the Class B Common Stock, par value $.50
per share, of Concord, as is set forth below, the Company shall issue, or has
issued, to each of the Shareholders, and each of them hereby subscribes for and
agrees to purchase, or has subscribed for and purchased, the number of shares
set forth opposite his name:
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Number of Company Shares Number of Concord Shares
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Shareholder Class A Class B Class A Class B
--------------------------------------------------------------------------------
AW 1,619,770 0 777,310 842,460
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JW 120,000 0 60,000 60,000
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DW 154,576 0 84,463 70,113
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PW 70,113 84,463 84,463 70,113
--------------------------------------------------------------------------------
JonW 70,113 84,463 84,463 70,113
--------------------------------------------------------------------------------
EK 78,000 0 78,000 0
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Each Shareholder acknowledges and agrees that at the effective time
of the Merger each share of Class A Common Stock, par value $.01 per share (the
"Class A Common
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Stock") of the Company issued and outstanding immediately prior to the Merger
shall be converted into and exchanged for one share of the Class A Common Stock,
par value $.50 per share, of the Surviving Corporation, and each share of the
Class B Common Stock, par value $.01 per share (the "Class B Common Stock," and
together with the Class A Common Stock, the "Common Stock"), of the Company
issued and outstanding immediately prior to the merger shall be converted into
and exchanged for one share of the Class B Common Stock, par value $.50 per
share, of the Surviving Corporation and all such shares of Class A and Class B
Common Stock of the Surviving Corporation shall be subject to, and the holders
of such shares and the Surviving Corporation shall be bound by, the terms and
provisions of this Agreement.
2. Ownership of the Company. The Shareholders and the Company intend that
the beneficial ownership of the Company immediately after execution of this
Agreement will be as follows:
================================================================================
Approximate
Number of Percentage
Shareholder Shares of Common Stock Ownership
----------- ---------------------- ------------
--------------------------------------------------------------------------------
AW 1,619,770 71%
--------------------------------------------------------------------------------
JW 120,000 5%
--------------------------------------------------------------------------------
DW 154,576 7%
--------------------------------------------------------------------------------
PW 154,576 7%
--------------------------------------------------------------------------------
JonW 154,576 7%
--------------------------------------------------------------------------------
EK 78,000 3%
--------------------------------------------------------------------------------
Total 2,281,498 100%
================================================================================
3. Restricted Shares. The Shareholders acknowledge that the Common Stock
has not been registered in accordance with the Securities Act of 1933, as
amended (the "Securities
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Act"), and as such the Common Stock may not be sold or transferred and must be
held indefinitely, unless they are subsequently registered under the Act or an
exemption from registration is available. Each of the Shareholders understands
and acknowledges that the Company is under no obligation to register the Common
Stock or to comply with any exemption under the Act or to supply or file any
information which would facilitate sales of the Common Stock.
II. CROSS PURCHASE RIGHTS
1. Transfer of Shares. In addition to, and not in limitation of, the
restrictions on transfers of Common Stock issued to and owned by the
Shareholders (collectively, the "Shares") contained in Article I hereof, and in
order to ensure continuity of ownership and control of the Company, no
Shareholder shall have the right, without the written consent of the Company and
of the other Shareholders, to sell, assign, transfer, hypothecate or otherwise
dispose of any or all of his interests in the Shares, except as provided herein.
The restrictions provided herein shall not apply to (i) any sale, transfer,
assignment or pledge by one Shareholder to either another Shareholder or the
Company; (ii) any sale, transfer, assignment or pledge by a Shareholder to any
member of his immediate family or to any trust created for his sole benefit
and/or the benefit of one or more members of his immediate family; provided,
that the transferee shall become a party to this Agreement and be bound by this
Agreement and the Shares so sold, transferred, assigned or pledged shall, solely
for purposes of this Agreement, continue to be deemed owned by the Shareholder
making such sale, transfer, assignment or pledge; and provided further, that the
Company shall not have objected to such proposed sale, transfer, assignment or
pledge within thirty (30) days after receipt of written notice thereof; (iii)
any sale, transfer, assignment
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or pledge occurring subsequent to the closing of a firm commitment underwritten
public offering of the Company's Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of such Common Stock for the account of the Company having an
aggregate offering price to the public of not less than Five Million Dollars
($5,000,000); (iv) the pledge of Shares to secure the Company's and any of the
Shareholder's obligations under any financing arrangements entered into in
connection with the Merger and the related tender offer; or (v) any sale,
transfer or assignment in accordance with the remaining provisions of this
Article III hereof.
2. Right of First Refusal.
(a) A Shareholder desiring to sell, transfer, pledge, assign or
otherwise dispose of or encumber all or any of his Shares, other than in
accordance with Section I.1 above, shall at such time as he receives a legally
binding offer to consummate such transaction first deliver a written notice (the
"Offer Notice") to the Company, notifying the Company of his intention to sell
such Shares (the "Offered Shares") and specifying the number of Offered Shares,
the name of the person or persons to whom he proposes to sell (or if no
particular person is identified then the general class of persons to whom he
proposes to sell), and a price per share which shall be the minimum price at
which he proposes to effect the sale (the "Minimum Price"). The Offer Notice
shall offer to sell to the Company the Offered Shares at the Minimum Price and
on other terms and conditions, if any, not less favorable to the Company as
those contained in the legally binding offer from such other person or persons
(or class of persons). For purposes of this Section 2, the Shareholder desiring
to dispose of the Offered Shares shall be referred to as the "Offeror".
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(b) The Company may accept or reject the offer contained in the
Offer Notice, in whole or in part, in writing within twenty (20) days after the
date thereof. A failure to respond shall constitute a rejection of the Offer. In
the event the Company rejects the offer in whole or in part, the Offeror shall
promptly deliver a written notice to the other Shareholders (the "Offeree
Shareholders") offering to sell that portion of Offered Shares not accepted by
the Company to the Offeree Shareholders at the same price as offered to the
Company. Each of the Offeree Shareholders may accept or reject such offer in
whole or in part, within ten (10) days after receipt thereof. A failure to
respond shall constitute a rejection of the offer. If more than one Offeree
Shareholder desires to purchase the Offered Shares, then each Offeree
Shareholder shall have the right to purchase the Offered Shares in the
proportion that the number of Shares owned by such Offeree Shareholder bears to
the total number of Shares owned by all Offeree Shareholders desiring to
purchase the Offered Shares.
(c) In the event the Company and/or any of the Offeree Shareholders
elect to purchase any of the Offered Shares, the closing of the purchase and
sale of the Offered Shares shall take place at a time and place mutually agreed
upon by the Offeror and the Company and/or each purchasing Offeree Shareholder,
as the case may be, but in all events not later than thirty (30) days following
the date of acceptance of the offer. At the closing of such purchase and sale,
the Offeror shall deliver to the Company and/or each purchasing Offeree
Shareholder, as the case may be, the stock certificates evidencing the Offered
Shares (which shall be transferred free and clear of any liens or encumbrances)
together with duly endorsed stock powers, and the Company and/or each purchasing
Offeree Shareholder, as the case may be, shall deliver to the Offeror a
certified check in the amount of the purchase price for the Offered Shares.
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(d) In the event that the Company and the Offeree Shareholders fail
to accept the offer to sell the Offered Shares in its entirety, or as to any
portion of the Offered Shares, the Offeror shall be free to proceed to sell all
of the Offered Shares or such portion of the Offered Shares as to which the
Company and the Offeree Shareholders shall not have accepted the offer, to the
person or persons (or class of persons) and on the terms and conditions
specified in the Offer Notice, and at not less than the Minimum Price. If the
Offeror fails to complete his proposed sale within a period of three (3) months
after the earlier to occur of the date of rejection of the offer contained in
the Offer Notice by the Company and all Offeree Shareholders or the expiration
of the periods within which such offer could have been accepted, then, if the
Offered Shares have not been sold, they shall once again be subject to the
requirements of a prior offer pursuant to the provisions hereof.
(e) This Agreement shall apply to any person who acquires any Shares
from any Shareholder and such person shall be deemed a "Shareholder" for
purposes of this Agreement. It shall be a condition of any Shareholder's right
to sell, assign or otherwise transfer any Shares to any such person that he
shall have delivered to the Company and the other Shareholders a copy of this
Agreement executed by such person and that such person agree to abide by the
provisions of this Agreement.
3. Bankruptcy or Attachment. The occurrence of any of the following:
(a) the attachment of the Shares of any Shareholder by a judgment
creditor or by any person claiming a lien thereto which lien is not
removed or bonded in full within ninety (90) days thereof;
(b) the adjudication of bankruptcy of a Shareholder following the
filing of any
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involuntary petition against the Shareholder; and
(c) the filing of a petition in voluntary bankruptcy, the use of any
insolvency act of a general assignment or trust mortgage arrangement for
the benefit of creditors;
shall ipso facto be determined for all purposes to be and shall be,
an offer by said Shareholder to sell his Shares (or, in the case of subparagraph
(a), the Shares subject to attachment or lien) to the Company, or the other
Shareholders, in accordance with the terms of this Article III for a purchase
price equal to the fair market value of the Shares offered hereunder, giving due
consideration to all relevant factors. If the offering Shareholder and the
Company cannot agree on the fair market value of the Shares then the fair market
value shall be determined by arbitration in accordance with the following
provisions, which arbitration shall be final and binding upon the parties, their
successors and assigns, and the parties agree that the following provisions
constitute a binding arbitration clause under applicable law. Either the
offering Shareholder or the Company may initiate arbitration by delivery of a
demand therefor (the "Arbitration Demand") to the other party at any time after
the occurrence of an event described in subparagraphs (a) through (c) above. The
arbitration shall be conducted in the Borough of Manhattan, New York, New York
by one arbitrator (the "Arbitrator") selected by agreement of the offering
Shareholder and the Company not later than 10 days after delivery of the
Arbitration Demand or, failing such agreement, appointed pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). The arbitration shall be conducted pursuant
to the Federal Arbitration Act and the New York Uniform Arbitration Act and such
procedures as the offering Shareholder and the Company may agree or, in the
absence of or failing such agreement, pursuant to the AAA Rules. The Arbitrator
shall
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complete all hearings not later than 90 days after selection or appointment, and
shall make a final determination not later than 30 days thereafter. The
Arbitrator shall apportion all costs and expenses of the arbitration as he deems
fair and reasonable.
4. Mandatory Repurchases by the Company.
(a) Repurchases upon Death. Upon the death of a Shareholder other
than AW or JW, the Company shall purchase, and the estate of the deceased
Shareholder shall sell, all of the Shares owned by the deceased Shareholder (the
"Decedent") at the time of his death, at a price determined in accordance with
subsection (e) below. The closing of such purchase and sale shall take place as
soon as reasonably practicable following the Decedent's death and the
appointment of an executor or fiduciary for the Decedent's estate (the
"Estate"). At the closing, the Estate shall deliver to the Company the stock
certificates evidencing the Shares owned by the Decedent at the time of his
death (which Shares shall be transferred free and clear of any liens or
encumbrances) together with duly endorsed stock powers, and the Company shall
deliver to the Estate a certified check in the amount of the purchase price for
the Shares.
(b) Xxxxxxxxx Repurchase. Upon the occurrence of the earlier of (i)
the third anniversary of the date of this Agreement, or (ii) the death of the
later to die of AW and JW (the "Survivor"), and anytime thereafter, each of AW
and JW (or in the case of clause (ii) above, the estate of the Survivor (the
"Survivor's Estate")) may, at his or her option, offer to sell and sell and the
Company shall purchase in five equal annual installments one-fifth of the number
of Shares owned by AW and/or JW (or, if applicable, the Survivor's Estate) at a
price determined in accordance with subsection (e) below. The date the Company
receives notice of the exercise of
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such option and each of the first four anniversaries of such date shall be
referred to herein as a "Xxxxxxxxx Repurchase Date." Notwithstanding the
foregoing, upon the occurrence of a Sale of the Knit Division (as defined below)
or a Sale of the Concord House Division (as defined below), the Company shall,
at the request of AW and/or JW (or, if applicable, the Survivor's Estate)
purchase all of the Shares held by AW and/or JW (or, if applicable, the
Survivor's Estate) on the date of such occurrence at a price determined in
accordance with subsection (e) below. The date on which the Sale of the Knit
Division or the Sale of the Concord House Division occurs shall be deemed to be
a "Xxxxxxxxx Repurchase Date." For purposes of this Agreement, the term "Sale of
the Knit Division" shall mean the disposition by the Company of all or
substantially all of its interest in the operations of its knit division to a
third party which is not an affiliate of the Company or any Shareholder whether
effected through a single transaction or a series of transaction, and the term
"Sale of the Concord House Division" shall mean the disposition by the Company
of all or substantially all of its interest in the operations of its Concord
House division to a third party which is not an affiliate of the Company or any
Shareholder whether effected through a single transaction or a series of
transaction.
(c) Xxxxxx Repurchase. Upon the earlier to occur of the date of (i)
termination of EK's employment with the Company for any reason; (ii) EK's
retirement from the Company; (iii) the disability of EK to perform the duties of
his employment with the Company which disability shall last at least six (6)
consecutive months; and (iv) the Sale of the Knit Division (such earlier date,
the "EK Repurchase Date"), the Company shall purchase and EK shall sell all of
the Shares owned by EK on the EK Repurchase Date at a price determined in
accordance with subsection (e) below.
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(d) Repurchase Closings. The Xxxxxxxxx Repurchase Dates and the EK
Repurchase Date are referred to in this subsection collectively as the
"Repurchase Dates" and singly as a "Repurchase Date." The closing of each
purchase and sale pursuant to subsections (b) and (c) above shall take place as
soon as reasonably practicable following the applicable Repurchase Date. At the
closing, the selling Shareholder (or, if applicable, the Survivor's Estate)
shall deliver to the Company the stock certificate evidencing the Shares being
sold (which Shares shall be transferred free and clear of any liens or
encumbrances) together with duly endorsed stock powers, and the Company shall
deliver to the selling Shareholder (or, if applicable, the Survivor's Estate) a
certified check in the amount of the purchase price for the Shares.
(e) Purchase Price.
(i) The purchase price for any sale of Shares pursuant to
subsections (a) and (c) above shall be computed as of the date of death of
the Decedent in the case of a sale pursuant to subsection (a) above, and
as of the EK Repurchase Date in the case of a sale pursuant to subsection
(c) above (such dates referred to as the "Purchase Price Date"). The
purchase price shall be equal to the number of Shares purchased multiplied
by the book value of one Share as of the December 31st immediately
preceding the Purchase Price Date, increased or decreased, as the case may
be, by the per Share net income after taxes, or net loss, of the Company
from such December 31st to the end of the month immediately following the
Purchase Price Date.
(ii) The purchase price for any sale of Shares by AW and JW
(or, if applicable, the Survivor's Estate) pursuant to this Agreement
shall be equal to the number of Shares purchased multiplied by the book
value of one share of the Class A Common
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Stock of Concord as of December 31, 1998, increased or decreased, as the
case may be, by the per share net income after taxes, or net loss, of
Concord from December 31, 1998 to the end of the month immediately
preceding the date of the Merger.
(iii) The amount of net income after taxes, or net loss,
applicable to the calculations in subsections (e)(i) and (e)(ii) above
shall be computed from the books of the applicable company by such
company's regular independent accountants in accordance with regularly
accepted accounting principles consistently applied. Such accountants'
computations shall be conclusive and the amount so computed when added, or
subtracted, as the case may be, to or from the book value as of the
preceding December 31st shall be accepted as the purchase price for the
sale of shares in question and no other determination of such purchase
price shall be required or made.
(f) Insufficient Surplus.
If, at the time the Company is required to pay the purchase price
for the Shares of a Shareholder pursuant to this Agreement, the Company's
surplus is insufficient for such purposes, then
(i) the entire available surplus shall be used to purchase part of
the Shares of the selling Shareholder, or if more than one Shareholder is
selling, to purchase pro rata parts of the Shares of all selling
Shareholders; and
(ii) the Company and the Shareholders shall promptly take all
required action to reduce the stated capital of the Company to the extent
necessary for the redemption of the unpurchased Shares at the price
determined as provided above.
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In the event that, after the steps pursuant to clause (ii) above to increase
surplus have been taken, the Company is nevertheless without sufficient surplus
to pay the purchase price for all of the Shares of the selling Shareholder, then
the other Shareholders shall have the option to purchase all or part of the
Shares of the selling Shareholder(s) which are not purchased by the Company at
the same price. The option shall remain in force for a period of thirty (30)
days after it has been determined that the Company is unable to make the payment
and may be exercised by the other Shareholders by written notice delivered to
the selling Shareholder (or in the case of death, his Estate). The closing of a
purchase of Shares by the other Shareholders shall take place at the same time
and in the same manner as the purchase by the Company in accordance with this
Section 4. In the case of a transfer upon the death of a Shareholder, any Shares
of the Decedent which can not be sold to the Company or the other Shareholders
in accordance with this Section 4 may be transferred to any person by the last
will and testament of the Decedent duly admitted to probate, or pursuant to
applicable laws of intestacy, provided, however, that any such transferee of
Shares of the Decedent shall, as a condition to such transfer, be required to
execute a copy of, and agree to be bound by, this Agreement and any such
transferee shall be deemed a "Shareholder" for purposes of the Agreement.
5. Purchase of Company. In the event that there shall be made a bona fide
offer to purchase (the "Purchase Offer") the Company as a going concern (whether
effected by purchase of assets, purchase of stock or merger) by any entity
(whether or not affiliated with the Company or with either of the Shareholders),
and the Proposing Shareholder (as defined below) desires to accept such offer,
but one or more other Shareholders (the "Declining Shareholder(s)") do not
desire to accept such offer, then, in any such event, the Proposing Shareholder
shall so notify the
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Declining Shareholder(s), and shall, upon such notice be deemed to have given,
as of the date of such notice, an offer notice pursuant to Section 2 of this
Article II to the Declining Shareholder(s), the terms of such offer notice being
deemed to be the terms of the Purchase Offer, applied pro rata in accordance
with the number of Shares owned by each Shareholder. Accordingly, the Declining
Shareholder(s) shall thereupon have the right to purchase all but not some of
the Shares of the Proposing Shareholder(s) and all other Shareholders that
desired to accept the Purchase Offer (together with the Proposing Shareholder,
the "Accepting Shareholders") on the same terms and conditions as the Purchase
Offer, applied pro rata to the number of shares owned by each such Shareholder,
in accordance with the terms and conditions of Section 2 of this Article II,
which terms and conditions shall be deemed incorporated herein in their
entirety, including, without limitation, any exemptions and exceptions therein
specified. If more than one of the Declining Shareholders desires to purchase
the Shares of the Accepting Shareholders, then each such Declining Shareholder
shall have the right to purchase the Shares of the Accepting Shareholders in the
proportion that the number of shares owned by such Declining Shareholder bears
to the total number of Shares owned by all Declining Shareholders desiring to
purchase the Shares of the Accepting Shareholders. Notwithstanding the
foregoing, however, and for purposes of this Section 5 only, in the event that
the Declining Shareholder(s) decline to purchase all of the Accepting
Shareholders Shares on such terms and conditions, the Declining Shareholder
shall, upon rejection of such purchase or upon the expiration of the thirty-day
period referred to in Section 2 of this Article III, be deemed to have accepted
the Purchase Offer, and the Shareholders shall thereupon take such steps as may
be appropriate to consummate the Purchase Offer. For purposes of this Section 5,
"Proposing Shareholder" shall mean AW until
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his death and then, if JW survives AW, JW until her death, and then, if DW
survives AW and JW, DW until his death. The provisions of this Section 5 shall
not apply to the Merger.
III. REGISTRATION RIGHTS
1. Definitions
As used in this Article IV, the following terms shall have the
following meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares of the Common Stock and any other stock
into which such shares may hereafter be converted, reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Initial Public Offering" means the first sale by the Company of
shares of its Common Stock to the public pursuant to an effective registration
statement under the Securities Act.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
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"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means shares of Common Stock which are
subject to the terms and provisions of this Agreement, provided, however, that
with respect to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (a) they have been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement relating thereto, or (b) to the extent that such
securities, in the opinion of counsel to the Company, are permitted to be
distributed pursuant to Rule 144, and may then be sold without regard to any
volume limitation (or if the volume limitation would permit distribution and
sale of all such securities in a single three-month period). In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Securities" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Agreement.
"Registration Expenses" means all expenses incident to the
performance of or compliance with Section III.2 by the Company and the Holders
of Registrable Securities
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exercising the rights granted in Section III.2, including, without limitation,
all registration and filing fees, including fees with respect to filings
required to be made with the National Association of Securities Dealers, Inc.,
fees and expenses of compliance with securities or blue sky laws, including,
without limitation, all word processing, duplicating and printing expenses,
messenger, telephone and delivery expenses, and fees and disbursements of
counsel and of all independent certified public accountants (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance).
"Registration Statement" means any registration statement,
contemplated by Section III.2(a), including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Piggyback Registration
(a) Right to Include Registrable Securities. The Company agrees that
if at any time after such time, if ever, as the Initial Public Offering is
completed it desires to register for
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sale any of its equity securities on Form X-0, X-0 or S-3 or any successor or
similar form(s) under the Securities Act pursuant to an Underwritten
Registration or Underwritten Offering (but not including registrations in
connection with an employee benefit plan, an offering by the Company to its
existing security holders, or a merger, acquisition or consolidation), it will,
each such time, give prompt written notice to all Holders of Registrable
Securities of such Holders' rights under this Section III.2. Upon the written
request of any such Holder (a "Requesting Holder") made no later than (30)
thirty days after any such notice has been given by the Company, the Company
will use its commercially reasonable efforts to effect the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders thereof; provided, however, that
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, do so by giving written notice of such determination to each
Requesting Holder of Registrable Securities.
(b) Priority in Piggyback Registrations. If the managing underwriter
of any underwritten offering that is the subject of this Section III.2 shall
inform the Company in writing of its belief that the number or type of
Registrable Securities and other securities of the Company requested to be
included in such registration would materially adversely affect such offering,
then the Company will include in such registration, to the extent of the number
and type which the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account, and second, the portion of Registrable Securities requested to be
included in such registration and any other securities of the Company
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requested to be included in such registration which the Company has been advised
by the managing underwriter can be sold, drawn from them pro rata based on the
number each has requested to be included in such registration.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration of Registrable Securities requested pursuant to
this Section III.2. All other costs and expenses incurred by the Requesting
Holders in connection with such registration will be borne by the Requesting
Holders on the basis of the percentage that the Registrable Securities which are
being offered by each of them bears to the total number of Registrable
Securities sought to be registered pursuant to this Section III.2.
The obligation of the Company under this Section III.2 shall be limited to
two registration statements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall as expeditiously as reasonably possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such securities, and use its commercially reasonable efforts to
cause such Registration Statement to become and remain effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed 90 days following the effective date;
(b) prepare and file with the Commission such amendments to such
Registration Statement and supplements to the Prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed 90 days following the effective date;
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(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the Registration Statement, preliminary
Prospectus, final prospectus and such other documents as such underwriters and
holders may reasonably request in order to facilitate the public offering of
such securities;
(d) use its commercially reasonable efforts to register or qualify
the securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as such participating Holders
may reasonably request in writing within twenty (20) days following the original
filing of such Registration Statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified;
(e) notify the security Holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
Registration Statement has become effective or a supplement to any Prospectus
forming a part of such Registration Statement has been filed;
(f) prepare and promptly file with the Commission and promptly
notify such Holders of the filing of such amendment or supplement to such
Registration Statement or Prospectus as may be necessary to correct any
statements or omissions if, at the time when a Prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such Prospectus would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading;
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(g) cause all such Registrable Securities to be listed on each
securities exchange and inter-dealer quotation system on which similar
securities issued by the Company are then listed and pay all fees and expenses
in connection therewith; and
(h) advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its commercially
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
4. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless each Holder, the officers, directors, agents,
brokers, investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses") (as determined by a court
of competent jurisdiction in a final judgment not subject to appeal or review)
arising out of or relating to any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary
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to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which they
were made) not misleading, except to the extent, but only to the extent, that
such untrue statements or omissions are based upon information regarding such
Holder furnished to the Company by or on behalf of such Holder for use therein,
which information was reasonably relied on by the Company for use therein. The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. In connection with the Registration
Statement, each Holder shall furnish to the Company in writing such information
as the Company reasonably requests for use in connection with the Registration
Statement or any Prospectus and agrees, jointly and not severally, to indemnify
and hold harmless the Company, its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising out of or relating to any untrue statement of a material fact contained
in the Registration Statement, any Prospectus, or any form of prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished by
22
such Holder to the Company for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the Company
for use in the Registration Statement, such Prospectus or such form of
prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party. The Indemnifying Party
23
shall not be liable for any settlement of any such Proceeding effected without
its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
(d) Contribution. If a claim for indemnification under Section
III.4(a) or 4(b) is unavailable to an Indemnified Party or is insufficient to
hold such Indemnified Party harmless for any Losses in respect of which this
Section would apply by its terms (other than by reason of exceptions provided in
this Section), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section III.4(c), any reasonable attorneys' or
other fees or expenses incurred by such party in connection with any
24
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party.
5. Rule 144
The Company agrees that if it hereafter becomes subject to the
reporting requirements of the Exchange Act it shall thereafter use its
commercially reasonable efforts to file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and to comply
with the requirements of Rule 144(c) with respect to current public information
about the Company.
6. Special Provisions.
(a) Information as to Sellers. Each seller of Registrable Securities
shall promptly furnish the Company with such information, undertakings and
powers of attorney as the Company may from time to time reasonably request in
order to enable it to perform its obligations hereunder.
(b) Requests for Registration. Each request for registration which
is made by a Holder of Registrable Securities pursuant to Section III.2 above
shall specify the name and address of the seller, the number of Registrable
Securities for which registration is sought, and the proposed plan of
distribution thereof.
(c) Registration Not Required in Certain Circumstances. Anything in
this Agreement contained to the contrary notwithstanding, the Company shall not
be required to register any Registrable Securities under the Securities Act, and
this Agreement will terminate automatically, when, as and if, in the written
opinion of counsel for the Company, said Registrable Securities may be sold
without the need for compliance with the registration
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provisions of the Securities Act.
IV. GENERAL PROVISIONS
1. Subchapter S Election. The Shareholders and the Company agree that as
soon as practicable after the Merger they shall execute and file all such
documents and to take such other actions as are necessary for the Company to be
treated for tax purposes as an S corporation pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended, and pursuant to such similar
provisions of the law of any state or local taxing jurisdiction in which the
Company or the Shareholders are subject to tax. Notwithstanding any provision of
this Agreement to the contrary, no party to this Agreement shall take any action
or make any transfer of Shares, without the prior written consent of the other
parties, which would result in the termination or revocation of such election,
and each of them shall take such actions as may be required, to continue such
election in effect from year to year.
2. Dividends. With respect to any taxable period of the Company during
which it is an S corporation, within thirty (30) days after the Company files
its federal income tax return, Form 1120S, for such taxable period, the Company
promptly shall declare and pay a dividend to all Shareholders in an amount equal
to the product of (i) the excess of the Company's income allocated to such
Shareholders during such taxable period over the amount of any dividends
declared by the Company and paid to such Shareholders during such taxable
period, multiplied by (ii) the sum of the maximum federal and state income tax
rates in effect for such taxable period (assuming a married individual residing
in the State of New York). The Company's obligation to declare and pay such a
dividend to the Shareholders in such an amount is subject to the restrictions
governing dividends under the General Corporations Law of Delaware and such
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other pertinent governmental restrictions as are now, or any hereafter become,
effective, and also subject to such reasonable terms and conditions as the Board
of the Company may determine. If the Company does not have sufficient funds to
permit it lawfully to declare and pay such dividend, the Shareholders and the
Company shall use reasonable efforts to create sufficient funds to permit the
payment of such dividend, whereupon the Company shall declare and pay such
dividend.
3. Preemptive Rights. If the Company proposes to issue any shares of its
capital stock, or any options, warrants or other rights to directly or
indirectly acquire its capital stock or any securities convertible into or
exchangeable for its capital stock, other than pursuant to a Permitted Issuance,
each Shareholder shall have the option to purchase a portion of such securities
sufficient to enable such Shareholder to maintain its percentage interest in the
Company's capital stock (on a fully-diluted basis assuming the conversion of all
convertible securities and exercise of all warrants and options) immediately
prior to such issuance. The Company shall give each Shareholder at least 30 days
prior written notice of any such proposed issuance, setting forth in reasonable
detail the proposed terms and conditions thereof, including without limitation
the identity of the proposed recipient (the "Issuance Notice"), and shall offer
to each Shareholder the opportunity to purchase such securities at the same
price, on the same terms, and at the same time as the securities are proposed to
be issued by the Company. A Shareholder may exercise his option to purchase by
delivery of a written notice to the Company within 15 days after delivery of the
Issuance Notice, which exercise shall be irrevocable. As used in this Section
IV. 3, "Permitted Issuance" shall mean any issuance of securities of the Company
(i) pursuant to any incentive compensation plan of the Company or otherwise as
27
compensation to directors, employees or consultants to the Company or (ii) in
connection with an acquisition of another business by the Company.
4. Legend. All certificates representing Shares owned by the Shareholders,
or any transferee of the Shareholders, shall contain on the face thereof, the
following legends:
"The sale, transfer or encumbrance of
this certificate is subject a certain
Shareholders' Agreement dated July 29,
1999, a copy of which is on file at the
office of the issuer and will be
provided upon request by the registered
owner hereof. The Agreement, among other
things, restricts the transfer of the
Shares evidenced by this certificate and
provides for certain obligations to sell
and to purchase the Shares evidenced by
this certificate, for a designated
price. By accepting the Shares evidenced
by this certificate the holder agrees to
be bound by said Agreement."
"The Shares represented by this
Certificate have not been registered
under the Securities Act of 1933 (the
"Securities Act"). The holder by
acceptance hereof agrees that no
transfer or other disposition of these
Shares will be made or shall be
effective in the absence of an opinion
of counsel acceptable to the issuer that
no registration statement under the
Securities Act is necessary with respect
to the proposed transfer or
disposition."
No dividend shall be paid nor any distribution made on Shares sold, transferred,
pledged, assigned or encumbered in breach of this Agreement, nor shall any such
transfer be registered on the books of the Company.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
principles of conflict of laws except that Section IV.3 which grants preemptive
rights to the Shareholders shall be
28
governed by the laws of the State of Delaware.
6. Notices. Notices to any party hereunder shall be deemed to be given
when sent by certified mail or registered mail, postage prepaid, return receipt
requested, to the address of such party set forth in the preamble hereof, or to
such other address as may be specified by notice to the other parties hereof.
7. Specific Performance. The parties hereto recognize that various of the
rights of the parties under this Agreement are unique and, accordingly, each of
the parties shall have, in addition to such other remedies as may be available
at law or in equity, the right to injunctive relief and specific performance.
Without limiting the generality of the foregoing, if any transfer of Shares is
made or attempted contrary to the provisions of this Agreement, the other
Shareholders, or the Company, as the case may be, shall have the right to
injunctive relief and specific performance to the extent permitted by law.
8. Entire Agreement. The parties hereto acknowledge that this Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings between
them as to such subject matter and there are no restrictions, agreements or
arrangements, whether oral or written, between any or all of the parties
relating to the subject matter hereof which are not fully expressed or referred
to herein.
9. Amendments. This Agreement may not be amended, nor shall any waiver,
change, modification, consent or discharge be effected, except by an instrument
in writing executed by or on behalf of the party or parties against whom
enforcement of such amendment, waiver, change, modifications, consent or
discharge is sought.
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10. Assignment. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto and the holders from
time to time of any shares of capital stock of the Company and of the Company's
successors and assigns.
11. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Company and the Shareholders have caused this
Agreement to be executed as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
CONCORD MERGER CORP.
/s/ Xxxxx Xxxxxxxxx
By: /s/ Xxxx Xxxxxx ---------------------------------
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Title: President Printed: Xxxx Xxxxxxxxx
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/s/ Xxxxx Xxxxxxxxx
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/s/ Xxxxx Xxxxxxxxx
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Printed: Xxxxx Xxxxxxxxx
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/s/ Xxxxxxxx Xxxxxxxxx
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Printed: Xxxxxxxx Xxxxxxxxx
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/s/ Xxxx Xxxxxx
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