EXHIBIT 99.3
DIRECT MARKETING HOLDINGS, INC.
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT ("AGREEMENT") is made as of October 24,
2003 by and among Direct Marketing Holdings, Inc., a Delaware corporation (the
"CORPORATION"), the Investors and the Executives (collectively referred to as
the "STOCKHOLDERS" and individually as a "STOCKHOLDER.") Capitalized terms used
herein are defined in Section 21 hereof.
RECITALS
WHEREAS, the Stockholders will acquire shares of Common Stock pursuant
to a Contribution Agreement among the Corporation and the Stockholders dated as
of the date hereof, or pursuant to Subscription Agreement between the
Stockholder and the Corporation dated as of the date hereof; and
WHEREAS, the Corporation and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) assuring continuity in the
management and ownership of the Corporation, (ii) limiting the manner and terms
by which the Stockholders' Common Stock may be transferred and (iii) providing
the Stockholders with certain registration rights. The execution and delivery of
this Agreement is a condition to the Stockholders' acquisition of the Common
Stock pursuant to the Contribution Agreement or the Subscription Agreement, as
applicable.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. RESTRICTIONS ON TRANSFER OF STOCKHOLDER SHARES. The restrictions set
forth in this Section 1 shall apply to all Stockholder Shares until a Public
Sale or an Approved Sale of the Corporation (but shall not apply to such Public
Sale or Approved Sale).
(a) PROHIBITION AGAINST TRANSFER OF STOCKHOLDER SHARES. No
Stockholder shall sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of (collectively, a "TRANSFER") any interest in any
Stockholder Shares or Options unless pursuant to either (i) the provisions of
Sections 1(b) through 1(e) hereof or (ii) the Transfer is in connection with a
sale of securities pursuant to Section 2 or Section 3. No Executive shall be
entitled to Transfer any Unvested Shares at any time (other than any Unvested
Share transferred in accordance with Section 1(e)(iii)) until such time as such
shares become Vested Shares, at which time, the Vested Shares shall be subject
to the restrictions on Transfer of this Section 1.
(b) CORPORATION RIGHT OF FIRST REFUSAL. At least 45 days prior
to an Executive making any Transfer of any Stockholder Shares (other than
pursuant to Sections 2 or 3 hereof or to a Permitted Transferee), the
transferring Executive (the "TRANSFERRING STOCKHOLDER") shall deliver an Offer
Notice to the Corporation and the other Stockholders (the "OTHER STOCKHOLDERS").
The Offer Notice shall be deemed to be an offer of the subject Stockholder
Shares to the Corporation and the Other Stockholders on the same terms and
conditions as proposed by the third party. The Corporation may elect to purchase
all or a portion of the
Stockholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Stockholder within twenty-five (25) days after the delivery of the
Offer Notice (the "ELECTION PERIOD"). The purchase of the subject Stockholder
Shares shall be made in accordance with Section 1(d) hereof.
(c) OTHER STOCKHOLDERS RIGHT OF FIRST REFUSAL. In the event
the Corporation does not elect to purchase all of the Stockholder Shares subject
to the Offer Notice, the Other Stockholders shall have the right, but not the
obligation, to purchase any remaining Stockholder Shares subject to the Offer
Notice. Upon the expiration of the Election Period, the Other Stockholders shall
have an additional five (5) business days to notify the Transferring Stockholder
of their intention to acquire such remaining Stockholder Shares. Each Other
Stockholder may purchase his pro rata portion ("PRO RATA PORTION") of such
Stockholder Shares by multiplying the number of such Stockholder Shares by a
fraction: the numerator of which is the number of Vested Shares held by such
Other Stockholder and the denominator of which is the number of Vested Shares
held by all Other Stockholders. If one or more of the Other Stockholders elects
not to purchase its Pro Rata Portion of such Vested Shares (the "REMAINING
SHARES"), the Other Stockholders who have elected to purchase their Pro Rata
Portion may also purchase their Pro Rata Portion of the Remaining Shares in
successive rounds until all such Remaining Shares have been purchased. The
purchase of the subject Stockholder Shares shall be made in accordance with
Section 1(d) hereof.
(d) PROCEDURES FOR ACQUIRING STOCKHOLDER SHARES. If the
Corporation (or the Other Stockholders) has elected to purchase Stockholder
Shares from the Transferring Stockholder, the Transfer of such shares shall be
consummated as soon as practical after the delivery of the election notices, but
in any event within fifteen (15) days after the expiration of the Election
Period. To the extent that the Corporation (or the Other Stockholders) has not
elected to purchase all of the Stockholder Shares being offered, the
Transferring Stockholder may, within ninety (90) days after the expiration of
the Election Period, transfer any remaining Vested Shares to one or more third
parties at a price no less than the price per share specified in the Offer
Notice and on other terms no more favorable to the transferees than offered to
the Corporation in the Offer Notice, and such purchases shall be conditioned
upon all purchasers of Stockholder Shares executing a counterpart of this
Agreement. In the event the Offer Notice provides for any noncash consideration
for the Stockholder Shares, the Corporation and the Transferring Stockholder
shall negotiate in good faith to determine the cash equivalent of the
consideration proposed in the Offer Notice. The Corporation and/or the Other
Stockholders shall only be required to pay cash for the Stockholder Shares
acquired from the Transferring Stockholder. At the closing of the purchase of
Stockholder Shares, the Transferring Stockholder shall provide representations
and warranties as to his title to such securities and that there are no liens or
encumbrances on such securities and shall sign such stock powers and other
documents as may reasonably be requested by the Corporation and/or the Other
Stockholders.
(e) PERMITTED TRANSFERS. The restrictions contained in this
Section 1 shall not apply to the following transactions:
(i) with respect to any Transfer of Stockholder
Shares (other than Unvested Shares) by any Executive or Investor
pursuant to applicable laws of descent
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and distribution or to or among such Executive's or Investor's Family
Group or to Other Stockholders;
(ii) from HIG to:
(A) any affiliate of HIG; or
(B) any Qualified Institutional Buyer (as
defined under Rule 144A of the Securities Act), provided that
HIG may not sell more than 49% of its Stockholder Shares
pursuant to this Section 1(e)(ii)(B);
(iii) with respect to any Stockholder Shares held in
any escrow account, trust, earn-out account or similar device, the
Transfer of the Stockholder Shares to the Corporation.
(the transferee of any such Transfer being a "PERMITTED TRANSFEREE") PROVIDED
that, in the case of any of the foregoing Transfers the transferees of such
Stockholder Shares shall have agreed in writing to be bound by the provisions of
this Agreement affecting the Stockholder Shares so transferred; and
(iv) a pledge by any Stockholder of Stockholder
Shares to the Corporation's lenders, or any Transfer by means of a
foreclosure action pursuant to any such pledge.
(f) INVOLUNTARY TRANSFERS. Prior to a Public Sale, any event
which, were it not for the provisions of this Agreement, would cause any
Stockholder Shares and Options, or any interest therein, to be sold, assigned,
pledged, encumbered, awarded, or otherwise transferred, for consideration or
otherwise, to any person, whether voluntarily, involuntarily, or by operation of
law shall be deemed to constitute an offer to sell Stockholders Shares and
Options held by any Stockholder.
(g) PURCHASE RIGHTS. Upon the occurrence of any event
specified in Section 1(f), the Corporation (and then the Other Stockholders)
shall have the right to purchase such Stockholder Shares at their fair market
value (as defined below). Upon the Corporation's becoming aware of any of the
events set forth in Section 1(f), the Corporation may, but shall not be
obligated to, purchase all of the Stockholder Shares held by such Transferring
Stockholder. The Corporation and the Other Stockholders shall have the rights
and be subject to the same terms and conditions to purchase such Stockholder
Shares as set forth in Sections 1(b) through 1(d). In the event the Corporation
and the Other Stockholders do not provide the Transferring Stockholder timely
notice of their election to purchase pursuant to Section 1(b) and/or 1(c), the
Transferring Stockholder may retain his Stockholder Shares and such securities
shall remain subject to this Agreement. For purpose of this Section 1(g), "fair
market value" shall mean the number of such Stockholder Shares subject to
purchase in Section 1(f) multiplied by the per share value of the Corporation on
a fully diluted basis (which value shall be the quotient of (A) the difference
of (a) the product of (i) the Corporation's earnings before interest, taxes,
depreciation and amortization, excluding extraordinary gains and losses, for the
last twelve months (excluding any calculation for days elapsed from end-of-month
data) multiplied by (ii) 4.5 minus (b) the aggregate amount of all indebtedness
and capitalized leases of the
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Corporation (net of any cash or cash equivalents on hand) divided by (B) the
number of Stockholder Shares of the Corporation outstanding on a fully diluted
basis).
2. DRAG-ALONG RIGHTS.
(a) In the event of an Approved Sale, the Corporation shall
deliver twenty (20) days' prior written notice thereof to each Stockholder. Each
holder of Stockholder Shares shall vote for and consent to, and shall not raise
any objection to, bring a claim against or in any way contest, such Approved
Sale. If the Approved Sale is structured as: (i) a merger or consolidation, each
holder of Stockholder Shares shall waive any dissenters rights, appraisal rights
or similar rights in connection with such merger or consolidation; or (ii) a
sale of stock or a tax free contribution of stock, each holder of Stockholder
Shares shall (A) agree to sell or contribute all of their Stockholder Shares and
rights to acquire Stockholder Shares on the terms and conditions approved by the
Board of Directors of the Corporation ("BOARD") and on the same terms and
conditions as are applicable to every other Stockholder of the same class of
capital stock and (B) execute such stock or contribution agreement and other
documents as executed by the holders of a majority of the Stockholder Shares
consistent with clause (A). Each holder of Stockholder Shares shall take such
other necessary or desirable actions in connection with the consummation of the
Approved Sale as reasonably requested by the Corporation.
(b) The obligations of the holders of Stockholder Shares with
respect to the Approved Sale of the Corporation are subject to the satisfaction
of the following conditions: (i) upon the consummation of the Approved Sale,
each holder of Stockholder Shares shall receive for his Stockholder Shares the
same form of consideration and the same amount of consideration as the holders
of a majority of the Stockholder Shares receive for each of their Stockholder
Shares of the same class of capital stock; (ii) if any holders of Stockholder
Shares are given an option as to the form and amount of consideration to be
received, each holder of Stockholder Shares shall be given the same option;
(iii) in the case of an Approved Sale that is not a Reorganization of the
Corporation, each holder of then currently exercisable rights to acquire shares
of Stockholder Shares shall be given an opportunity to either (A) exercise such
rights prior to the consummation of the Approved Sale or (B) receive in exchange
for such rights consideration equal to the amount determined by multiplying (1)
the same amount of consideration per share received by holders of the same class
and series of Stockholder Shares in connection with the Approved Sale less the
exercise price per share of such rights to acquire such class and series of
Stockholder Shares by (2) the number of shares of such class and series of
issuable upon exercise of such rights; (iv) no Investor or Warrantholder shall
be obligated to agree to non-competition provisions; and (v) each Stockholder's
indemnification obligations (other than for title to its shares, authorization
and no conflict as to its execution of the agreement) shall be limited to the
net proceeds such Stockholder receives in the transaction and shall be no
greater than the Stockholder's proportionate ownership of the Common Stock.
3. TAG-ALONG RIGHTS.
(a) If any Stockholder proposes to Transfer his Stockholder
Shares (other than to a Permitted Transferee) and the Corporation has not
exercised any rights pursuant to Section 1(b), and the Other Stockholders have
not exercised their rights pursuant to Section 1(c), then the Transferring
Stockholder may transfer his Stockholder Shares provided it complies with the
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provisions of this Section 3. First (to the extent not already done so pursuant
to Section 1(b)), the Transferring Stockholder shall first give to the
Corporation and the Other Shareholders an Offer Notice. The Offer Notice shall
be an offer by the Transferring Stockholder to allow the Other Stockholders to
participate, upon the purchase by the proposed transferee of any shares of
Common Stock owned by the Transferring Stockholder and for the same per share
consideration. Each Stockholder shall have the right, for a period of fifteen
(15) days after the Offer Notice is given, to accept such offer in whole or in
part, exercisable by delivering a written notice to the Transferring Stockholder
and the Corporation within such fifteen (15) day period, stating therein the
number of shares of Common Stock (which may be the number of shares set forth in
the Offer Notice or a portion thereof) to be sold by such Stockholder to the
proposed transferee. Prior to the earlier of (x) the end of such fifteen (15)
day period or (y) the acceptance or rejection by each Stockholder of the
Transferring Stockholder's offer, as the case may be, the Transferring
Stockholder shall not complete any sale of Common Stock to the proposed
transferee.
(b) At the end of such fifteen (15) day period the Corporation
shall calculate the total number of Stockholder Shares that are proposed to be
sold. Each Stockholder shall be entitled to sell to the proposed transferee that
number of Stockholder Shares (or if such number is not an integral number, the
next integral number which is greater than such number) which shall be the
product of (x) the aggregate number of Stockholder Shares proposed to be sold by
such Stockholder and (y) a fraction, the numerator of which shall be the number
of shares of Common Stock indicated in the Offer Notice as subject to purchase
by the proposed transferee and the denominator of which shall be the total
number of Stockholder Shares proposed to be sold by all Stockholders and
Warrantholders. Thereafter, for a period of 120 days, the Transferring
Stockholder may sell to the proposed transferee for the consideration stated and
on terms no more favorable to the proposed transferee than those set forth in
the Offer Notice, shares of Common Stock stated in the Offer Notice as subject
to purchase by the proposed transferee; PROVIDED that the proposed transferee,
as the case may be, shall simultaneously purchase the number of shares of Common
Stock as calculated above from those Stockholders who have accepted the
Transferring Stockholder's offer. Any purchaser of Stockholder Shares pursuant
to this Section 3 shall be subject to, and have the rights and benefits of, the
terms and conditions of this Agreement.
4. STOCKHOLDER PREEMPTIVE RIGHTS. Subject to Section 4(d), prior to the
earlier of a Public Sale or a Sale of the Corporation, and for so long as any
Stockholder owns any Stockholder Shares, each time the Corporation proposes to
sell shares of its capital stock or options, warrants or other rights to buy
capital stock for cash, the Corporation shall also make an offering of such
shares to the Stockholders in accordance with the following provisions:
(a) The Corporation shall deliver a notice to each Stockholder
stating the number of shares to be offered and the price and the terms on which
it proposes to offer such shares. Such notice shall be sent to the addresses set
forth in the records of the Corporation.
(b) Within fifteen (15) days after delivery of the notice,
each Stockholder may elect to purchase, at the price and on the terms specified
in the notice, up to its Pro Rata Portion (taking into account capital stock
subject to currently exercisable warrants) of such shares by delivering written
notice of such election to the Corporation within such fifteen (15) days.
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(c) Any shares referred to in the notice that are not elected
to be purchased as provided in subsection 4(b) above may, during the 180-day
period thereafter, be offered by the Corporation to any other person or persons
at a price not less than, and on terms no more favorable to the offeree than,
those specified in the notice.
(d) The preemptive rights set forth in this Section 4 shall
not be applicable to the issuance of (i) shares of Common Stock to directors,
officers, consultants or employees of the Corporation pursuant to the
Corporation's stock option plans, (ii) warrants, and shares of Common Stock
issuable upon exercise of warrants, issued to the Corporation's lenders, (iii)
capital stock to Independent Third Parties in connection with a merger,
acquisition, plan of exchange or consolidation of another company, (iv) any sale
of securities to be issued pursuant to a registration statement filed pursuant
to the Securities Act with the Securities and Exchange Commission, (v)
additional Stockholder Shares issued pursuant to the formation of the
Corporation, (vi) subscriptions for shares executed before December 31, 2003 and
(vii) Stockholder Shares repurchased from Executives pursuant to their
respective employment agreements and subsequently reissued.
5. BOARD OF DIRECTORS.
(a) From and after the date hereof and until the earlier of a
Public Sale or a Sale of the Corporation, each Stockholder shall vote all of his
Stockholder Shares and any other voting securities of the Corporation over which
such Stockholder has voting control and shall take all other necessary or
desirable actions within his control (whether in his capacity as a stockholder,
director, member of a Board of Directors committee or officer of the Corporation
or otherwise, and including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings), and the Corporation shall take all necessary and
desirable actions within its control (including, without limitation, calling
special board and stockholder meetings), so that the following persons shall be
elected to the Board in the following manner:
(i) Election of directors.
(A) Two directors shall be designated by the
Investors, which directors shall initially be Xxxxxxx Xxxxxx
and Xxxx Xxxxx; and
(B) one director shall be designated by the
Executives at any time after the date hereof, which director
shall be elected by the Executives holding a majority of the
Stockholders Shares held by all the Executives;
(ii) the removal from the Board (with or without
cause) of any representative designated hereunder by the Investors or
the Executives shall be at only the Investors' or the Executives'
written request, respectively, and under no other circumstances (in the
case of the Executives, determined on the basis of a vote of the
holders of a majority of the Stockholder Shares held by such persons),
provided that (x) if any director elected pursuant to (i)(B) above
ceases to be an employee of the Corporation and its subsidiaries, he
shall be removed as a director promptly after his employment
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ceases and (y) nothing herein shall preclude the Board or the
Stockholders from removing a Director for cause under Delaware law; and
(iii) in the event that any representative designated
hereunder by the Investors or the Executives for any reason ceases to
serve as a member of the Board during his term of office, the resulting
vacancy on the Board shall be filled by a representative designated by
the Investors or the Executives, respectively, as provided hereunder;
provided that any representative removed for cause shall not be
designated again as a member of the Board.
(b) If any party fails to designate a representative to fill a
directorship pursuant to the terms of Section 5(a), the election of a person to
such directorship may be accomplished in accordance with the Corporation's
bylaws and applicable law.
(c) The certificate of incorporation and bylaws of the
Corporation may be amended in any manner permitted thereunder, except that
neither the certificate nor the bylaws shall be amended in any manner that would
conflict with, or be inconsistent with, the provisions of this Agreement.
6. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. After six (6) months after the
Corporation's initial public offering, the (i) Investors or (ii) Executives who
hold a majority of the then outstanding Common Stock held by all Executives (the
"MAJORITY EXECUTIVES"), may request registration under the Securities Act of all
or part of their respective Stockholder Shares on Form S-1 or any similar
long-form registration ("LONG-FORM REGISTRATIONS"), and the Investors or the
Majority Executives may request registration under the Securities Act of all or
part of their respective Stockholder Shares on Form S-2 or S-3 or any similar
short-form registration ("SHORT-FORM Registrations") if available. All
registrations requested pursuant to this paragraph 6(a) are referred to herein
as "DEMAND REGISTRATIONS." Each request for a Demand Registration shall specify
the approximate number of Stockholder Shares requested to be registered by the
party exercising its Demand Registration and the requested per share price
range, if any, for such offering.
(b) LONG-FORM REGISTRATIONS. The Investors shall be entitled
to request (i) four (4) Long-Form Registrations in which the Corporation will
pay all Registration Expenses ("CORPORATION-PAID LONG-FORM REGISTRATIONS"), and
(ii) four (4) Long-Form Registrations in which the Investors will pay their own
share of the Registration Expenses as set forth in Section 10 hereof. The
Majority Executives shall be entitled to request (i) two (2) Corporation-Paid
Long-Form Registrations and (ii) two (2) Long-Form Registrations in which the
Investors will pay their own share of the Registration Expenses as set forth in
Section 10 hereof. A registration will not count as one of the permitted
Long-Form Registrations until it has become effective, and no Long-Form
Registration will count as one of the permitted Long-Form Registrations of the
party exercising its Demand Registration unless such party is able to register
and sell at least 75% of the Stockholder Shares requested to be included in such
registration by such party; provided that in any event the Corporation will pay
all Registration Expenses in connection with
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any registration initiated as a Corporation-Paid Long-Form Registration whether
or not it has become effective. All Long-Form Registrations shall be
underwritten registrations.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to paragraph 6(b), the Investors and the
Majority Executives shall be entitled to request an unlimited number of
Short-Form Registrations in which the Corporation will pay all Registration
Expenses; provided, however, that the size of each such offering should be at
least $10,000,000, and the Corporation and the securities meet the eligibility
requirements for such forms and provided further that the Short Form
Registration shall only be effective for 90 days and shall be subject to no sale
periods if in the reasonable judgment of the Corporation such Short Form
Registration conflicts with the Corporation's business plans or another existing
or proposed registration statement. Demand Registrations shall be Short-Form
Registrations whenever the Corporation is permitted to use any applicable short
form. After the Corporation has become subject to the reporting requirements of
the Securities Exchange Act of 1934, the Corporation shall use its best efforts
to make Short-Form Registrations on Form S-3 available for the sale of
Stockholder Shares.
(d) PRIORITY ON DEMAND REGISTRATIONS. Upon the Corporation's
commencement of a Demand Registration, the Corporation shall mail notice thereof
to all the Stockholders and the Stockholders shall have 20 days after such
mailing date to notify the Corporation of the number of shares they desire to
sell in such offering. The priorities of the parties in each registration shall
be as set forth in Section 7(d) hereof.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. The Corporation
shall not be obligated to effect any Demand Registration within six months after
the effective date of a previous underwritten registration of equity securities.
The Corporation may postpone for up to six months the filing or the
effectiveness of a registration statement for a Demand Registration if the
Corporation notifies the party exercising its Demand Registration that such
Demand Registration would reasonably be expected to have an adverse effect on
any business plan of the Corporation or any of its subsidiaries; provided that
in such event, the Investors or Majority Executives initially requesting such
Demand Registration will be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration will not count as one of the
permitted Demand Registrations hereunder and the Corporation shall pay all
Registration Expenses in connection with such registration.
(f) SELECTION OF UNDERWRITERS. The Corporation will have the
right to select the investment banker(s) and manager(s) to administer any
offerings.
(g) OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Contribution Agreement and pursuant to financing documents
entered into pursuant to the transactions contemplated by either of these
agreements, the Corporation shall not grant to any person the right to request
the Corporation to register any equity securities of the Corporation, or any
securities convertible or exchangeable into or exercisable for such securities,
without the prior written consent of the Investors and the Majority Executives;
provided that the Corporation may grant rights to other persons to participate
in Piggyback Registrations so long as such rights are subordinate to the rights
of the Stockholders with respect to such Piggyback Registrations.
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7. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Corporation proposes to
register any of its Common Stock under the Securities Act (other than the
initial public offering, a transaction described under Rule 145 of the
Securities Act, a transaction registering securities convertible into Common
Stock or pursuant to Form S-8 or its successor forms) and the registration form
to be used may be used for the registration of the Stockholder Shares of the
Stockholders (a "PIGGYBACK REGISTRATION"), the Corporation shall give prompt
written notice to the Stockholders of its intention to effect such a
registration and will include in such registration the Stockholder Shares of the
Stockholders with respect to which the Corporation has received written requests
for inclusion therein within 15 days after the receipt of the Corporation's
notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the
Stockholders shall be paid by the Corporation in all Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Corporation shall
include in such registration (i) first, the securities the Corporation proposes
to sell, (ii) second, the Stockholder Shares of the Stockholders requested to be
included in such registration and the common stock of any warrant holder
requested to be included in such registration and (iv) third, other securities
requested by other persons to be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities (other than a Piggyback Registration pursuant to
Section 7(e)), and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Corporation shall
include in such registration (i) first, the securities requested to be included
therein by the Person exercising its Demand Registration, (ii) second, the
Stockholder Shares requested to be included therein by the other Stockholders
and the common stock of any warrant holder requested to be in such registration
and (iv) third, other securities requested by other persons to be included in
such registration.
(e) PRIORITY ON WARRANTHOLDER REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of the holders
of the Warrants pursuant to a warrantholders rights agreement and the managing
underwriters advise the Corporation in writing that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Corporation shall include in such registration (i) first,
the securities requested to be included therein by the holders of the Warrants
exercising their demand registration rights pursuant to the warrantholders
rights agreement (ii) second, the Stockholder Shares requested to be included
therein by the Stockholders and (iii) third, other securities requested by other
persons to be included in such registration.
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(f) OTHER REGISTRATIONS. If the Corporation has previously
filed a registration statement with respect to the Stockholder Shares of the
Stockholders pursuant to Section 6 or pursuant to this Section 7, and if such
previous registration has not been withdrawn or abandoned, the Corporation shall
not without the consent of the Investors and the holders of a majority of the
Stockholder Shares held by the Executives file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least six months has elapsed from the effective date of such previous
registration.
(g) PRORATION OF ELIGIBLE SHARES. In the event of any
registration pursuant to this Section 7 the full amount of the Stockholder
Shares of a particular group of Stockholders (for example, the Executives)
requested to be included in such registration cannot be included in full, then
the number of Stockholder Shares available for registration shall be allocated
among such group pro rata based upon the number of Stockholder Shares requested
to be included in such registration by each member of the group.
8. LOCKUP AGREEMENTS.
(a) Each Stockholder agrees not to effect any public sale or
distribution (including sales pursuant to Rule 144) of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 180-day period
beginning on the effective date of the initial public offering, and during the
seven days prior to and the 90-day period beginning on the effective date of any
subsequent offering, in each case unless the underwriters managing the
registered public offering and the Corporation otherwise agree.
(b) The Corporation agrees (i) not to effect any public sale
or distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-8 or
any successor form), unless the underwriters managing the registered public
offering otherwise agree and (ii) to use its best efforts to cause each holder
of at least 5% (on a fully-diluted basis) of its Common Stock, or any securities
convertible into or exchangeable or exercisable for Common Stock, purchased from
the Corporation at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
9. REGISTRATION PROCEDURES. Whenever a Stockholder has requested that
any securities be registered pursuant to this Agreement, the Corporation shall
use its best efforts to effect the registration and the sale of such securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Corporation shall as expeditiously as possible:
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(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Corporation shall furnish to the counsel selected by
the Stockholders covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review
and comment of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Stockholders thereof
set forth in such registration statement;
(c) furnish to each seller of securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the securities owned by such seller;
(d) use its best efforts to register or qualify such
securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller
(provided that the Corporation shall not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of Stockholder 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,
at the request of any such seller, the Corporation shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Stockholder Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) cause all such securities to be listed on each securities
exchange on which similar securities issued by the Corporation are then listed
and, if not so listed, to be listed on the NASD automated quotation system and,
if listed on the NASD automated quotation system, use its best efforts to secure
designation of all such securities covered by such registration statement as a
Nasdaq national market security within the meaning of Rule 11Aa2-1 of the
Securities and Exchange Commission or, failing that, to secure NASDAQ
authorization for such securities and,
-11-
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such securities with the NASD;
(g) provide a transfer agent and registrar for all such
securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the Investors or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation'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;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Corporation's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) permit the Stockholder which, in its sole and exclusive
judgment, might be deemed to be an underwriter or a controlling person of the
Corporation, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Corporation in writing, which in the reasonable judgment of the
Stockholder and its counsel should be included;
(l) 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, the Corporation shall use its best efforts promptly to obtain the
withdrawal of such order; and
(m) obtain a cold comfort letter from the Corporation's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the Stockholder may
reasonably request (provided that the Stockholder Shares constitute at least 10%
of the securities covered by such registration statement).
10. REGISTRATION EXPENSES.
(a) All expenses incident to the Corporation's performance of
or compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and
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delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other persons retained by the Corporation (all such
expenses being herein called "REGISTRATION EXPENSES"), shall be borne as
provided in this Agreement, except that the Corporation shall, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by the
Corporation are then listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each
Piggyback Registration, the Corporation shall reimburse the Stockholders for the
reasonable fees and disbursements of one counsel for all Stockholders to the
extent the Stockholders request separate counsel from the Corporation.
(c) To the extent Registration Expenses are not required to be
paid by the Corporation, each holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all Stockholders of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
11. SECURITIES INDEMNIFICATION.
(a) REGISTRATION STATEMENTS. The Corporation agrees to
indemnify, to the extent permitted by law, each Stockholder (an "INDEMNITEE")
and, if such Indemnitee is an entity, its officers and directors, the
Corporation's officers and directors and each person who controls the
Indemnitees (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Corporation by the Indemnitees expressly for use therein or by the Indemnitees'
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after the Corporation has furnished the
Indemnitee with a sufficient number of copies of the same. In connection with an
underwritten offering, the Corporation shall indemnify such underwriters, their
officers and directors and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Indemnitee.
(b) ANCILLARY DOCUMENTS IN REGISTRATION. In connection with
any registration statement in which the Indemnitees are participating, the
Indemnitees shall furnish to the Corporation in writing such powers of attorney,
custody agreements and letters of direction and other information and affidavits
as the Corporation reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law, shall
only
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have to indemnify the Corporation, its directors and officers and each person
who controls the Corporation (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities and expenses resulting from any untrue
or alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by the
Indemnitees to the Corporation for specific use in such registration statement,
prospectus or amendment or supplement thereto and which remained in the final
prospectus delivered to the purchaser of such securities; provided that the
obligation to indemnify shall be limited to the net amount of proceeds received
by the Indemnitee from the sale of Indemnitee Shares pursuant to such
registration statement.
(c) SURVIVAL. The indemnification provided for under this
Agreement shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnitee or any officer, director or controlling
person of such Indemnitee and shall survive the transfer of securities. The
Corporation also agrees to make such provisions, as are reasonably requested by
any Indemnitee, for contribution to such party in the event the Corporation's
indemnification is unavailable for any reason.
(d) DEFINITION. For purposes of this Section 11 and Section 13
hereof, "EXPENSES" shall include attorneys' fees and costs, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses in connection
with prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, or otherwise participating in, actions,
suits, proceedings (including any investigations, litigation, or inquiries),
claims, demands, or causes of action (each, a "PROCEEDING"). Expenses also shall
include Expenses incurred in connection with any appeal resulting from any
Proceeding, including without limitation the premium, security for, and other
costs relating to any cost bond, supersede as bond, or other appeal bond or its
equivalent, and Expenses incurred by any Indemnitee in commencing or pursuing a
Proceeding against the Corporation to enforce the rights to indemnification
granted hereunder.
12. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person may
participate in any registration hereunder which is underwritten unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of securities included in any underwritten registration shall be required
to make any representations or warranties to the Corporation or the underwriters
other than representations and warranties regarding such holder and such
holder's intended method of distribution.
13. CORPORATE ACTION INDEMNIFICATION.
(a) The Corporation agrees to indemnify the Indemnitees from,
hold each of them harmless against and promptly upon demand pay or reimburse
each of them for, any and all
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reasonable costs, losses, liabilities, damages, or Expenses (as defined above)
of any kind or nature whatsoever (collectively, the "INDEMNITY MATTERS"), that
may be incurred by them or asserted against or involve any of them as a result
of a Proceeding, arising out of, or in any way related to (x) this Agreement,
the Contribution Agreement, or the transactions contemplated by this Agreement
and the Contribution Agreement or (y) actions taken to merge Thane
International, Inc. into the Corporation or a subsidiary of the Corporation
(either (x) or (y), "CORPORATE ACTIONS"), including, without limitation, claims
alleging breach of fiduciary or other duty, or other claims against a Indemnitee
relating to such Indemnitee's execution, delivery and performance of the
Corporate Actions.
(b) Notwithstanding any provision of this Agreement to the
contrary, and to the fullest extent permitted by applicable law, the Corporation
shall advance the Expenses incurred by a Indemnitee (or reasonably expected by
the Indemnitee to be incurred by the Indemnitee within twelve months) in
connection with any Proceeding within ten (10) days after the receipt by the
Corporation of a statement or statements requesting such advances from time to
time, whether prior to or after final disposition of any Proceeding. Advances
shall be unsecured and interest free. Advances shall be made without regard to
the Indemnitee's ability to repay the Expenses and without regard to the
Indemnitee's ultimate entitlement to indemnification under the other provisions
of this Agreement. Advances shall include any and all reasonable Expenses
incurred pursuing a Proceeding against the Corporation to enforce the rights of
advancement granted hereunder, including Expenses incurred preparing and
forwarding statements to the Corporation to support the advances claimed. Unless
required by law, no undertaking to repay the advance to the extent that it is
ultimately determined that Indemnitee is not entitled to be indemnified by the
Corporation under the provisions of this Agreement shall be required as a
condition of receiving any Advance.
(c) Promptly after a Indemnitee has received notice or has
knowledge of any claim for indemnification hereunder, or the commencement of any
Proceeding by a third person, that the Indemnitee believes in good faith is an
indemnifiable claim under this Agreement, the Indemnitee shall give the
Corporation written notice of such claim or the commencement of such action or
proceeding, but failure so to notify the Corporation will not relieve the
Corporation of any liability which it may have to such Indemnitee hereunder
except to the extent that the Corporation is materially prejudiced by such
failure. Such notice shall state the nature and the basis of such claim. The
Corporation shall have the right to defend and settle, at its own expense and by
its own counsel, any such matter.
(d) If more than one Indemnitee makes a claim for
indemnification hereunder due to a Proceeding arising out of the same Corporate
Action, the Corporation shall in its discretion defend such Indemnitees jointly,
unless the interests of an Indemnitee in such joint defense shall be, in the
reasonable discretion of the Board, clearly adverse to the interests of another
Indemnitee. Each of the Indemnitees hereby agrees to cooperate with any joint
defense.
(e) If the Corporation determines to defend or settle, it
shall promptly notify the Indemnitee of its intention to do so, and the
Indemnitee shall cooperate with the Corporation and its counsel in all
commercially reasonable respects in the defense thereof and the settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Corporation with any books, records and other information reasonably
requested by the Corporation and in
-15-
the Indemnitee's possession or control. Such cooperation of the Indemnitee shall
be at the cost of the Corporation. After the Corporation has notified the
Indemnitee of its intention to undertake to defend or settle any such asserted
liability, the Corporation shall not be liable for any additional legal expenses
incurred by the Indemnitee in connection with any defense or settlement of such
asserted liability; provided, however, that the Indemnitee shall be entitled (x)
at its expense, to participate in the defense of such asserted liability and the
negotiations of the settlement thereof or (y) if (A) the Corporation has failed
to assume the defense and employ counsel or (B) if the defendants in any such
action include both the Indemnitee and the Corporation and counsel to the
Indemnitee shall have concluded that there may be reasonable defenses available
to the Indemnitee that are different from or additional to those available to
the Corporation or if the interests of the Indemnitee reasonably may be deemed
to conflict with the interests of the Corporation, then the Indemnitee shall
have the right to select a separate counsel and to assume such legal defense and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the Corporation as incurred, and the Corporation shall not
settle any such claim without the consent of the Indemnitee unless the
settlement thereof imposes no liability or obligation on, and includes a
complete release from liability of, the Indemnitee. If the Indemnitee undertakes
such a defense through counsel of its choice, the Indemnitee may settle such
matter, and the Corporation shall reimburse the Indemnitee for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnitee in connection therewith.
14. LEGEND. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the Transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS'
AGREEMENT. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE CORPORATION'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
The Corporation shall imprint such legend on certificates evidencing
outstanding Stockholder Shares. The legend set forth above shall be removed from
the certificates evidencing any shares which cease to be Stockholder Shares
pursuant to a Public Sale.
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15. INFORMATION.
(a) The Corporation agrees to furnish to each Stockholder the
following financial statements and other information:
(i) as soon as available and in any event within 45
days after the end of each of the first, second and third quarterly
accounting periods in each fiscal year of the Corporation, copies of
the unaudited consolidated and consolidating balance sheets of the
Corporation and its subsidiaries as of the end of such quarterly
accounting period, and of the related consolidated and consolidating
statements of income and retained earnings and cash flows for such
accounting period and for the portion of the fiscal year then ended,
all in reasonable detail and stating in comparative form the unaudited
consolidated and consolidating figures as of the end of and for the
corresponding date and period in the previous fiscal year;
(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Corporation, copies of
the audited consolidated balance sheets of the Corporation and its
subsidiaries as of the end of such fiscal year of the Corporation, and
of the related audited consolidated statements of income and retained
earnings and cash flows for such fiscal year, all in reasonable detail
and stating in comparative form the respective consolidated and
consolidating figures as of the end of and for the previous fiscal
year, and, in the case of such audited consolidated statements,
accompanied by a report thereon of a "big five" firm of independent
certified public accountants selected by the Corporation (the
"ACCOUNTANTS"), which report shall be unqualified as to going concern
and scope of audit and shall state that such consolidated financial
statements present fairly the consolidated financial position of the
Corporation and its subsidiaries as at the dates indicated and their
consolidated income and retained earnings and cash flows for the
periods indicated in accordance with GAAP, and that the examination by
the Accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards.
(b) The Corporation agrees, so long as any Investor holds any
Stockholder Shares, to use all reasonable efforts to (i) timely file with the
Securities and Exchange Commission all reports required to be filed by the
Corporation under the Securities Exchange Act of 1934, as amended and (ii)
provide each Stockholder, upon request, information sufficient to enable such
Stockholder to sell Stockholder Shares under Rule 144 of the Securities Act;
provided, however, the Corporation shall have no liability to any Stockholder
under this Section 15(b) unless the Corporation fails to perform after 30 days
prior written notice of a previous failure to perform.
16. CONFIDENTIALITY. All materials and information obtained by any
Stockholder pursuant to this Agreement or otherwise delivered by the Corporation
to any Stockholders shall be kept confidential and shall not be disclosed to any
third party except (a) as has become generally available to the public (other
than through disclosure by such Stockholder in contravention of this Agreement),
(b) to such Stockholder's directors, officers, trustees, partners, employees,
agents and professional consultants on a need to know basis, (c) to any other
holder of Common Stock or Warrants, (d) to any Person to which such Stockholder
offers to sell or
-17-
transfer any shares of Common Stock or Warrants, PROVIDED, that the prospective
transferee shall agree to be bound by the provisions of this Section 16, (e) in
any report, statement, testimony or other submission to any governmental
authority having or claiming to have jurisdiction over such Stockholder or (f)
in order to comply with any law, rule, regulation or order applicable to such
Stockholder, or in response to any summons, subpoena or other legal process or
formal or informal investigative demand issued to such Stockholder in the course
of any litigation, investigation or administrative proceeding.
17. CONFLICTING AGREEMENTS. Each Stockholder represents that such
Stockholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement, and no holder of Stockholder Shares shall grant any proxy or
become party to any voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement. No Stockholder shall act,
for any reason, as a member of a group or in concert or enter into any agreement
or arrangement with any other person in connection with the acquisition,
disposition or voting of Stockholder Shares in any manner which is inconsistent
with the provisions of this Agreement.
18. ACTIONS CONSISTENT WITH AGREEMENT. The Corporation shall not
circumvent this Agreement by taking any action through a subsidiary or affiliate
that would be prohibited under this Agreement. The certificate of incorporation
and bylaws of the Corporation may be amended in any manner permitted thereunder,
except that neither the certificate nor the bylaws shall be amended in any
manner that would conflict with, or be inconsistent with, the provisions of this
Agreement.
19. TRANSFER. Prior to transferring any Stockholder Shares (other than
in a Public Sale) to any person or entity pursuant to the terms of this
Agreement, the Transferring Stockholder shall cause the prospective transferee
to execute and deliver to the Corporation and the other Stockholders a
counterpart of this Agreement. Each such counterpart shall be deemed to be an
original part of this Agreement as though executed on the date hereof. Upon the
execution of this Agreement (a) the transferee shall be treated as an Investor
if the majority of its shares were acquired from the Investors and shall be
counted in all votes or actions of the Investors or (b) the transferee shall be
treated as an Executive if the majority of its shares were acquired from the
Executives and shall be counted in all votes or actions of the Executives.
20. HIG CAPITAL COMMITMENT. Subject to approval by its Board of
Directors, HIG will make available $15,000,000 of equity and/or debt capital to
the Corporation to complete synergistic add-on acquisitions which, in the
opinion of HIG's Board of Directors, are suitable for and financially attractive
to the Corporation.
21. DEFINITIONS.
"AGREEMENT" shall have the meaning set forth in the first
paragraph hereof.
"APPROVED SALE" means a Sale of the Corporation or a
Reorganization of the Corporation approved by the Board of Directors of the
Corporation and the holders of a majority of the Stockholder Shares.
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"CHANGE IN CONTROL" means any sale or issuance or series of
related sales or issuances of the capital stock of the Corporation, or any
merger or consolidation involving the Corporation, immediately after which any
person or group of persons acting in concert (including officers and directors
of the Corporation) holds the voting power to elect a majority of the
Corporation's Board of Directors or holds beneficial ownership of a majority of
the Corporation's outstanding Common Stock.
"COMMON STOCK" means (i) the Corporation's Common Stock, par
value $.001 per share (whether Vested Shares or Unvested Shares) and (ii) any
securities issued or issuable with respect to the capital stock referred to in
clause (i) above by way of stock dividends or stock splits or in connection with
a combination of shares, recapitalization, merger, consolidation, or other
reorganization.
"CONTRIBUTION AGREEMENT" shall mean that certain Contribution
Agreement dated as of October 24, 2003 by and among the Corporation and the
parties hereto.
"CORPORATE ACTIONS" shall have the meaning set forth in
Section 13(a) hereof.
"CORPORATION" shall have the meaning set forth in the first
paragraph hereof.
"CORPORATION-PAID LONG-FORM REGISTRATIONS" shall have the
meaning set forth in Section 6(b) hereof.
"DEMAND REGISTRATIONS" shall have the meaning set forth in
Section 6(a) hereof.
"ELECTION PERIOD" shall have the meaning set forth in
paragraph 1(b) hereof.
"EXECUTIVE" means each person, other than an Investor and the
Corporation, who has signed on the signature page(s) hereto.
"EXPENSES" shall have the meaning set forth in Section 11(d)
hereof.
"FAMILY GROUP" means a Stockholder's parents, parents-in-law,
siblings-in-law, spouse and descendants (whether natural or adopted) and any
trust solely for the benefit of the Stockholder and/or the Stockholder's
parents, parents-in-law, siblings-in-law, spouse and/or descendants.
"HIG" means H.I.G. Direct Marketing Holdings, Inc., a Cayman
Islands corporation.
"INDEMNITEE" shall have the meaning set forth in Section 11(a)
hereof.
"INDEMNITY MATTERS" shall have the meaning set forth in
Section 13(a) hereof.
"INDEPENDENT THIRD PARTY" means any person who, immediately
prior to the contemplated transaction, does not own in excess of 5% of the
Corporation's Common Stock on a fully-diluted basis (a "5% Owner)", who is not
controlling, controlled by or under common
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control with any such 5% Owner and who is not the spouse or descendent (by birth
or adoption) of any such 5% Owner or a trust for the benefit of such 5% Owner
and/or such other persons.
"INVESTORS" means H.I.G. Direct Marketing Holdings, Inc., KPI,
Inc. and Desert Value Holdings, Inc., each a Cayman Islands corporation
"LONG-FORM REGISTRATIONS" shall have the meaning set forth in
Section 6(a) hereof.
"MAJORITY EXECUTIVES" shall have the meaning set forth in
Section 6(a) hereof.
"OFFER NOTICE" shall mean the notice required to be given by a
Transferring Stockholder to the Corporation and/or the Other Stockholders
describing a proposed Transfer. At a minimum, the Offer Notice shall be in
writing and shall contain (i) the number of shares of Common Stock that the
Transferring Stockholder proposes to sell; (ii) the name and address of the
proposed transferee; (iii) the proposed purchase price, terms of payment and
other material terms and conditions of such proposed transfer; and (iv) an
estimate, in the Transferring Stockholder's reasonable judgment, of the fair
market value of any non-cash consideration offered by the proposed transferee.
"OPTION" means any right, warrant, option or arrangement which
allows a person to acquire securities of the Corporation or requires the
Corporation to issue any securities to a Person.
"OTHER STOCKHOLDERS" shall have the meaning set forth in
Section 1(b) hereof.
"PERMITTED TRANSFEREE" shall have the meaning set forth in
paragraph 1(e) hereof.
"PIGGYBACK REGISTRATION" shall have the meaning set forth in
Section 7(a) hereof.
"PRO RATA PORTION" shall have the meaning set forth in Section
1(c) hereof.
"PROCEEDING" shall have the meaning set forth in Section 11(d)
hereof.
"PUBLIC SALE" means any sale of Stockholder Shares to the
public pursuant to an offering registered under the Securities Act or to the
public through a broker, dealer or market maker pursuant to the provisions of
Rule 144 adopted under the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning set forth in
Section 10(a) hereof.
"REMAINING SHARES shall have the meaning set forth in Section
1(c) hereof.
"REORGANIZATION OF THE CORPORATION" means any corporate
restructuring of the Corporation pursuant to which the essential ownership of
the Corporation is consistent after such transaction as prior to such
transaction, including without limitation, a reincorporation, merger into a
wholly-owned subsidiary or limited liability company, or contribution of shares
into a newly formed entity for purposes of making a tax-deferred acquisition
under Section 351 of the Internal Revenue Code.
-20-
"SALE OF THE CORPORATION" means the sale of the Corporation to
an Independent Third Party or group of Independent Third Parties pursuant to
which such party or parties acquire (i) capital stock of the Corporation
possessing the voting power under normal circumstances to elect a majority of
the Corporation's Board of Directors (whether by merger, consolidation or sale
or transfer of the Corporation's capital stock) or (ii) all or substantially all
of the Corporation's assets determined on a consolidated basis.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SHORT-FORM REGISTRATIONS" shall have the meaning set forth in
Section 6(a) hereof.
"STOCKHOLDER" shall have the meaning as set forth in the
preamble and shall include their permitted successors and assigns.
"STOCKHOLDERS" shall have the meaning set forth in the
preamble.
"STOCKHOLDER SHARES" means: (a) any Common Stock purchased or
otherwise acquired by any Stockholder, including without limitation, Unvested
Shares and Vested Shares; (b) any equity securities issued or issuable directly
or indirectly with respect to the Common Stock referred to in clause (a) above
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization; and (c)
any other shares of any class or series of capital stock of the Corporation held
by a Stockholder. As to any particular shares constituting Stockholder Shares,
such shares shall cease to be Stockholder Shares when (i) they have been sold to
the public through a Public Sale even if thereafter they are reacquired by a
Stockholder and (ii) all of such Stockholder's Stockholder Shares can be sold
pursuant to Rule 144 of the Act within a six month period.
"TRANSFER" shall have the meaning set forth in Section 1(a)
hereof.
"TRANSFERRING STOCKHOLDER" shall have the meaning set forth in
Section 1(b) hereof.
"UNVESTED SHARES" means (i) any Common Stock purchased or
otherwise acquired by a Stockholder which is subject to vesting requirements or,
as a result of an agreement with the Corporation or the Investors, other
contractual risk of forfeiture and (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization occurring subsequent to the date of this Agreement and the close
of the Merger; PROVIDED, HOWEVER, upon the occurrence of the event or action
which causes the Executive to have vested rights in all or any portion of such
Common Stock or otherwise removes the substantial risk of forfeiture, the
portion of such Common Stock as to which "vesting" occurred shall become Vested
Shares.
"VESTED SHARES" means (i) any Common Stock purchased or
otherwise acquired by a Stockholder which is free of vesting requirements and
substantial risk of forfeiture from contractual restrictions through an
agreement with the Corporation or the Investors and (ii) any equity securities
issued or issuable directly or indirectly with respect to the Common Stock
-21-
referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization.
"WARRANTHOLDERS" means any holders of Warrants who are also
signatories to this Agreement.
"WARRANTS" means warrants to purchase Common Stock of the
Corporation.
22. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Corporation shall not record such Transfer on
its books or treat any purported transferee of such Stockholder Shares as the
owner of such shares for any purpose.
23. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Corporation, the Investors or an Executive unless such
modification, amendment, termination or waiver is approved in writing by the
Corporation, the Investors or the Executives holding a majority of the
Stockholder Shares held by all the Executives, respectively; PROVIDED, HOWEVER,
that the Corporation may from time to time add additional shareholders of the
Corporation to this Agreement without the consent or additional signatures of
the parties hereto (and amend and/or restate the Agreement to reflect such
additions) and upon the Corporation's receipt of such additional stockholders'
signature pages, such additional stockholders shall be deemed to be a party
hereto and such additional signature pages shall be a part of this Agreement.
The failure of any party to enforce any of the provisions of this Agreement
shall in no way be construed as a waiver of such provisions and shall not affect
the right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
24. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
25. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
-22-
26. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Corporation and its successors and assigns and the Stockholders and any
permitted subsequent holders of Stockholder Shares and the respective successors
and permitted assigns of each of them, so long as they hold Stockholder Shares.
27. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
28. REMEDIES. The Corporation, the Investors and the Executives shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that the Corporation, any Investor and
any Executive may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
29. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Corporation at the address set forth below and to any other
recipient at the address indicated on the signature pages hereto and to any
subsequent holder of Stockholder Shares subject to this Agreement at such
address as indicated by the Corporation's records, or at such address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder when delivered personally, three days after deposit in the U.S. mail
and one day after deposit with a reputable overnight courier service. The
Corporation's address is:
Direct Marketing Holdings, Inc.
0000 Xxxxxxxx Xxx Xxxxx -- 00xx Xxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx Xxxxxx
with a copy to:
H.I.G. Direct Marketing Holdings, Inc.
c/o H.I.G. Capital LLC
0000 Xxxxxxxx Xxx Xxxxx -- 00xx Xxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxxxx
and a copy to:
H.I.G. Capital LLC
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx Xxxxx
30. ENFORCEABILITY. This Agreement shall be enforceable against the
Corporation when the Corporation and one or more Stockholders execute a
counterpart signature page hereto.
-23-
This Agreement shall be enforceable against the Corporation and as to each
additional Stockholder upon the execution by the additional Stockholder of a
counterpart signature page hereto.
31. GOVERNING LAW. This Agreement will be construed and interpreted in
accordance with and governed by the laws of the State of Delaware.
32. TERMINATION. The provisions of Sections 1, 2, 3, 4, 5, 14 and 15
shall terminate on the date of a Public Sale. All of the terms of this Agreement
expire on the date on which any of the following events first occurs: (i) a Sale
of the Corporation or (ii) the tenth anniversary of the date of this Agreement.
* * *
-24-
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement on the day and year first above written.
DIRECT MARKETING HOLDINGS, INC.
By: /s/ XXXX XXXXX
-------------------------------------
Name: Xxxx Xxxxx
Title: President
H.I.G. DIRECT MARKETING HOLDINGS, INC.
By: /s/ XXXX XXXXXXXX
-------------------------------------
Name: Xxxx Xxxxxxxx
Title: Vice President and Secretary
Address: c/o H.I.G. Capital LLC
0000 Xxxxxxxx Xxx Xxxxx,
00xx Xxxxx
Xxxxx, Xxxxxxx 00000
KPI, INC.
By: /s/ XXXX XXXXXXXX
-------------------------------------
Name: Xxxx Xxxxxxxx
Title: Vice President and Secretary
Address: c/o H.I.G. Capital LLC
0000 Xxxxxxxx Xxx Xxxxx,
00xx Xxxxx
Xxxxx, Xxxxxxx 00000
DESERT VALUE HOLDINGS, INC.
By: /s/ XXXX XXXXXXXX
-------------------------------------
Name: Xxxx Xxxxxxxx
Title: Vice President and Secretary
Address: c/o H.I.G. Capital LLC
0000 Xxxxxxxx Xxx Xxxxx,
00xx Xxxxx
Xxxxx, Xxxxxxx 00000
[Signature Page to Stockholders' Agreement]
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/s/ XXXXX XXXXX
-----------------------------------------
Xxxxx Xxxxx
Address: c/o Xxxxxxx X. Xxx
00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
/s/ XXXX XXXXXX
-----------------------------------------
Xxxx Xxxxxx
Address: 0000 Xxxx 00xx Xxxxxx
Xxxxx, Xxxxxxxxx 00000
/s/ XXXXXX XXXXXXX-XXX
-----------------------------------------
Xxxxxx XxXxxxx-Xxx
Address: 00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
/s/ XXXXXXX X. XXX
-----------------------------------------
Xxxxxxx X. Xxx
Address: 00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
THE HAY FAMILY GENERATION SKIPPING TRUST
By: /s/ REMUS HASTE
-------------------------------------
Name: Remus Haste
Title: Trustee
Address: 00-000 Xxxx Xxxxx, Xxxxx X
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
/s/ XXXXX XXXX
-----------------------------------------
Xxxxx Xxxx
Address: 00 Xxxxxxx Xxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
[Signature Page to Stockholders' Agreement]
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/s/ XXXXXX XXXXX
-----------------------------------------
Xxxxxx Xxxxx
Address: 000 Xxxxx Xxxx Xxxxxxxxx, #000
Xxxxx, Xxxxxxxxxxxx 00000
/s/ XXXX XXXXX
-----------------------------------------
Xxxx Xxxxx
Address: c/o Krane Products, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx
Xxxxx 000-X
Xxxx Xxxxx, Xxxxxxx 00000
/s/ XXXXXX XXXXX
-----------------------------------------
Xxxxxx Xxxxx
Address: c/o Krane Products, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx
Xxxxx 000-X
Xxxx Xxxxx, Xxxxxxx 00000
/s/ XXXXX XXXXXXX
-----------------------------------------
Xxxxx Xxxxxxx
Address: c/o Xxxxxxx X. Xxx
00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
/s/ XXXX XXX
-----------------------------------------
Xxxx Xxx
Address: c/o Xxxxxxx X. Xxx
00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
[Signature Page to Stockholders' Agreement]
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/s/ XXXXXXX X. XXXXXX
-----------------------------------------
Xxxxxxx X. Xxxxxx
Address: XxxXxxXxxx.Xxx
00000 Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
/s/ XXX XXXXXX
-----------------------------------------
Xxx Xxxxxx
Address: c/o Xxxxxxx X. Xxx
00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
/s/ J. XXXXXX XXXXXXX
-----------------------------------------
J. Xxxxxx Xxxxxxx
Address: Xxxx Xxxxxxx International Inc.
0 Xxxxx Xxxxx-Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx X0X 0X0
Xxxxxx
/s/ XXXX XXXXXX
-----------------------------------------
Xxxx Xxxxxx
Address: 000 Xxxxxx Xxxxx
Xxxx Xxxxx, Xxxxxxx 00000
/s/ AMIR TUKULJ
-----------------------------------------
Amir Tukulj
Address: 0000 Xxxxxxxx Xxxxxx Xxxx,
Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
[Signature Page to Stockholders' Agreement]
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/s/ XXXXXX XXXX
-----------------------------------------
Xxxxxx Xxxx
Address: c/o Xxxxxxx X. Xxx
00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
/s/ XXXXX X. XXXXXX
-----------------------------------------
Xxxxx X. Xxxxxx
Address: XxxXxxXxxx.Xxx
00000 Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
/s/ XXXXXXX XXXXXXXX
-----------------------------------------
Xxxxxxx Xxxxxxxx
Address: c/o Amir Tukulj
0000 Xxxxxxxx Xxxxxx Xxxx,
Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
/s/ XXXXXX XXXXX
-----------------------------------------
Xxxxxx Xxxxx
Address: c/o Xxxxxxx X. Xxx
00-000 Xxxxx Xxxxxxx
Xx Xxxxxx, Xxxxxxxxxx 00000
[Signature Page to Stockholders' Agreement]
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/s/ XXXXXX XXXXXX
-----------------------------------------
Xxxxxx Xxxxxx
Address: c/o Thane Direct U.K. Ltd.
00-00 Xxxxxxx Xxxxxx
Xxxxxx X0X 0XX
[Signature Page to Stockholders' Agreement]
-30-
