Exhibit 10.19
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") made this 31st day of
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March 1997, by and among The International Cornerstone Group, Inc., a Delaware
corporation ("Cornerstone") and The Xxxxx X.X. Xxxxxxx Living Trust U/A dated
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11-11-93 ("Xxxxxxx Trust"), of which Xxxxx X.X. Xxxxxxx ("Xxxxxxx") is the
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sole trustee (Cornerstone and Xxxxxxx Trust are hereinafter sometimes referred
to as the "Stockholders") and The Territory Ahead, a Delaware corporation (the
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"Company").
RECITALS
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WHEREAS, contemporaneously with the execution of this Agreement,
Cornerstone will acquire 2,400 shares of the Common Stock, $0.01 par value per
share ("Common Stock") of the Company under the terms and conditions of that
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certain Stock Purchase Agreement (the "Stock Purchase Agreement") by and among
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Cornerstone, the Company and Lands' End Diversified Businesses, Inc. ("Lands'
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End") (the "Acquisition");
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WHEREAS, Xxxxxxx Trust currently owns 600 shares of the Common Stock
of the Company;
WHEREAS, Xxxxxxx has been the Chief Executive Officer of the Company
for the past eight years and shall continue to act as the Chief Executive
Officer of the Company after the Acquisition in accordance with the terms of
that certain Employment Agreement of even date herewith between Xxxxxxx and the
Company (the "Employment Agreement");
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WHEREAS, after the Acquisition, Cornerstone and Xxxxxxx Trust will be
the sole Stockholders of the Company; and
WHEREAS, Cornerstone and Xxxxxxx Trust have decided to set forth the
terms of their relationship as Stockholders of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and for other good and lawful consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
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GENERAL
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1.1 Definitions. Any terms used herein but not defined herein shall have
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the meaning ascribed to such terms in the Stock Purchase Agreement.
(a) "Affiliate" means, with respect to any particular Person, any
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Person controlling, controlled by or under common control with such Person.
(b) "Employment Agreement" means the Employment Agreement dated as of
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the date hereof by and between the Company and Xxxxxxx.
(c) "Family Group" means Xxxxxxx'x descendants (whether natural or
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adopted) and any trust solely for the benefit of Xxxxxxx and/or Xxxxxxx'x
descendants.
(d) "Independent Third Party" means any Person who, immediately prior
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to the contemplated transaction, does not own in excess of 5% of the Company's
shares of Common Stock on a fully-diluted basis (a "5% Owner"), who is not an
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Affiliate of any such 5% Owner and who is not a member of the Family Group of
any such 5% Owner.
(e) "Other Stockholder" means, with respect to a Person, the
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stockholder other than such Person.
(f) "Person" means an individual, a partnership, a corporation, a
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limited liability company, a limited liability partnership, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity or any department, agency or political subdivision thereof,
or any other entity of whatsoever term or nature.
(g) "Sale of the Company" means the sale of the Company to an
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Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances before giving effect to this Agreement)
to elect a majority of the Company's Board of Directors (whether by merger,
consolidation or sale or transfer of the Company's capital stock) or (ii) all or
substantially all of the Company's assets, determined on a consolidated basis,
by sale of assets, merger or otherwise.
(h) "Stockholder Shares" means collectively (i) any Common Stock
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purchased or otherwise acquired by either Xxxxxxx Trust or Cornerstone, (ii) any
equity securities of the Company 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, and (iii) any
other shares of any class or series of capital stock of the Company held by
either Xxxxxxx Trust or Cornerstone. As to any particular shares of Common Stock
constituting Stockholder Shares, such shares of Common Stock shall cease to be
Stockholder Shares when they have been transferred to a Person other than
Xxxxxxx Trust or Cornerstone, except as set forth in this Agreement.
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1.2 Formation. The parties agree that this Agreement shall govern certain
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of the operations of the Company and shall set forth certain of their rights and
obligations in regard to the ownership and management of the Company.
1.3 Principal Place of Business. The principal place of business of the
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Company shall be located at 000 Xxxxx Xxxxxx, Xxxxx Xxxxxxx, Xxxxxxxxxx 0000x-
304, or at such other place, subject to subsection 2.2.12, as the Board of
Directors shall, from time to time, select.
1.4 Authorization of Shares. The aggregate number of shares which the
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Company shall have authority to issue shall be 3,000 shares of Common Stock.
ARTICLE 2.
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GOVERNANCE AND MANAGEMENT
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Anything in this Agreement or any other agreement between or among the
parties hereto to the contrary notwithstanding, the following provisions shall
be paramount:
2.1 Certificate of Incorporation and Bylaws. Attached hereto as Schedule
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2.1(1) and made a part hereof is a true, correct and complete copy of the
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current Certificate of Incorporation of the Company; and, attached hereto as
Schedule 2.1(2) and made a part hereof is a true, correct and complete copy of
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the current Bylaws of the Company. As part of the Closing of the Acquisition,
Xxxxxxx and Cornerstone agree to amend the Bylaws in the form attached hereto as
Schedule 2.1(3). The Bylaws of the Company shall at all times meet the
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requirements of this Article 2, and neither the Certificate of Incorporation nor
the Bylaws shall be amended other than in compliance with Section 2.2 hereof.
The procedures of the Board of Directors and the Stockholders and the governance
of the Company shall be conducted in accordance with applicable law and the
Certificate of Incorporation and Bylaws of the Company, the terms of which are
hereby incorporated herein by reference. In the event the parties hereto shall
amend this Agreement in such a way as to create or cause a conflict between this
Agreement and either the Certificate of Incorporation, the Bylaws or both, then
the parties shall, in good faith, cause the Certificate of Incorporation and the
Bylaws (as the case may be) to be amended so that such Certificate of
Incorporation and Bylaws shall no longer be in conflict with this Agreement, as
so amended.
2.2 Major Decisions. From and after the Closing of the Acquisition and
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until the provisions of this Section 2.2 cease to be effective, the Board shall
not authorize any of the following actions without the affirmative approval of
both Xxxxxxx and Cornerstone:
2.2.1 The entering into of any contract (other than in the
ordinary course of business) involving an amount in excess
of $250,000 or a duration in excess of 12 months;
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2.2.2 The liquidation, dissolution or recapitalization of the
Company;
2.2.3 Until the third anniversary of the date of the Closing of
the Acquisition, the merger or consolidation of the Company
with any other entity, the entering into of any share
exchange with any other entity, the sale of all or
substantially all of the assets of the Company, or any
similar transaction;
2.2.4 The material change of the line of business of the Company;
2.2.5 The incurrence of indebtedness in excess of $250,000 (other
than pursuant to the Company's bank facility described in
Section 8.3 below);
2.2.6 Any material transaction between the Company and Xxxxxxx or
Cornerstone or any officer or director of the Company;
2.2.7 Except as expressly permitted pursuant to Article 5 hereof,
the issuance and sale to any Person of any shares of capital
stock of the Company or any other securities convertible
into shares of capital stock of the Company;
2.2.8 The approval of an annual operating plan and capital budget
for the Company or any material expenditure in excess of
such amount contemplated by such an approved operating plan
or capital budget;
2.2.9 The declaration of a dividend on the securities of the
Company or the redemption of any outstanding shares of
Common Stock or any other securities of or issued by the
Company or the purchase of any securities of the Company;
2.2.10 The acquisition of any company or business;
2.2.11 Any amendment of the Certificate of Incorporation or Bylaws
that would conflict with or contravene the provisions of
this Agreement;
2.2.12 The relocation of the Company's chief executive offices
outside of the City of Santa Barbara, California and its
immediate environs.
2.3 Board of Directors. From and after the Closing of the Acquisition and
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until the provisions of this Section 2.3 cease to be effective, each Stockholder
shall vote all of his or its
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Stockholder Shares and any other voting securities of the Company over which
such Stockholder has voting control and shall take all other necessary or
desirable actions within his or its control (whether in his or its capacity as a
stockholder, director, member of a board committee or officer of the Company 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 Company shall take all necessary and desirable
actions within its control (including, without limitation, calling special board
and stockholder meetings), so that the following provisions shall govern the
size, election and certain procedures of the Board of Directors:
2.3.1 Number: The Board of Directors shall consist of five (5)
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members; provided, however, that an interim Board of
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Directors consisting of two directors shall be elected,
which such directors shall be Xxxxx X.X. Xxxxxxx and Xxxxxxx
X. End. Within five (5) business days of the date of this
Agreement, the remaining three (3) directors shall be
elected.
2.3.2 Election: The following Persons shall be elected to the
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Board:
(a) Cornerstone shall have the right to designate two of the
members of the Board of Directors ("Cornerstone Directors");
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provided, however, that one director shall be Xxxxxxx End so
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long as Mr. End is affiliated with Cornerstone.
(b) Xxxxxxx shall have the right to designate two of the
members of the Board of Directors ("Xxxxxxx Directors").
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(c) The fifth member of the Board of Directors (the
"Independent Director") shall be designated by Xxxxxxx and
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Cornerstone for a three year term in accordance with the
following terms. The Independent Director shall not be
affiliated with either Xxxxxxx or Cornerstone and shall have
recognized experience in the industry in which the Company
competes. At the Closing of the Acquisition, Xxxxxxx and
Cornerstone shall agree on an initial mutually acceptable
individual as the Independent Director. Such individual
shall be offered the position of Independent Director. If
such individual does not accept the position, Xxxxxxx and
Cornerstone shall agree on an additional mutually acceptable
candidate who shall be offered the position. Within six
months after the Closing of the Acquisition, Xxxxxxx and
Cornerstone shall agree on three additional mutually
acceptable individuals as the Independent Director and shall
rank such individuals in the order in which they shall be
asked to serve as the Independent Director. After the term
of the initial Independent Director expires, if such
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initial Independent Director is not renominated, each such
individual on the list shall be offered the position of
Independent Director in the order in which his/her name
appears on the list. As each individual is removed from the
Board, Xxxxxxx and Cornerstone shall agree upon an
additional mutually acceptable candidate, who shall be added
to the bottom of the list. If Cornerstone and Xxxxxxx are
not able to agree on an additional mutually acceptable
candidate within a reasonable period of time, then, at the
request of either Cornerstone or Xxxxxxx, such additional
director shall be selected by the American Arbitration
Association.
(d) From and after such time as Xxxxxxx is no longer
employed by the Company as a result of his death,
disability, termination for cause or voluntary resignation,
the Independent Director shall be nominated and elected by
Cornerstone. If Xxxxxxx is no longer employed by the Company
as a result of a termination without cause (as described in
the Employment Agreement), the Independent Director will
continue to be nominated and elected pursuant to the
provisions of subparagraph (c) above.
(e) Notwithstanding anything to the contrary contained
herein, during the pendency of a Default Condition,
Cornerstone shall have the right to nominate and elect two
additional Cornerstone Directors, both of whom shall serve
only during the Default Condition. Upon evidence reasonably
satisfactory to Cornerstone of a cure of the Default
Condition, the two additional Cornerstone Directors shall be
removed from the Board of Directors on the first day of the
next consecutive fiscal quarter, provided no Default
Condition then exists. For the purposes of this Agreement, a
"Default Condition" shall be deemed to occur during the
period following written notice from Cornerstone to Xxxxxxx
and for so long as the following two conditions concurrently
exist: (A) the continuing failure of the Cornerstone
Directors and the Xxxxxxx Directors to reach agreement (as
reflected by the casting of votes at a duly called Board of
Directors meeting) with respect to any material strategic
and/or operating strategy to be employed or any material
action to be taken by the Company and (B) one of the
following: (i) two successive payment defaults under the
Company's bank facility referred to in Section 8.3, (ii) the
existence of a covenant default thereunder during any two
consecutive fiscal quarters, (iii) the receipt by the
Company of any notice from the Company's bank that it is
accelerating payment of
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the outstanding balance of the Company's facility or (iv)
the failure of the Company to achieve net sales and earnings
before interest, taxes, depreciation and amortization
("EBITDA") which equal or exceed 85% of projected net sales
or EBITDA, respectively, as reflected on the Company's then
current Operating Plan, for at least two successive fiscal
quarters. A Default Condition shall cease to exist on the
earlier to occur of, as applicable, (i) the cure of the
Company's default under its bank facility or (ii) the
Company achieving net sales or EBITDA equal to or in excess
of 85% of projected net sales or EBITDA, as set forth in the
Company's Operating Plan, for at least one fiscal quarter.
Net Sales and EBITDA shall be derived from the Company's
financial statements. The Operating Plan referred to above
shall be the 5-year plan attached to this Agreement as
Schedule 2.3.2(e), as modified from time to time by the
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Board of Directors. The Board of Directors shall review,
make appropriate modifications and approve at least annually
the Company's Operating Plan within 30 days' of the
Company's fiscal year end. If the Board of Directors fails
to approve the Operating Plan for two successive annual
fiscal periods, a Default Condition shall be deemed to exist
and continue to exist until such time as the Board of
Directors adopts such Operating Plan.
2.3.3 Removal: Upon the written request of Xxxxxxx, and under no
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other circumstances, any Xxxxxxx Director shall be removed
from the Board. Upon the written request of Cornerstone, and
under no other circumstances, any Cornerstone Director shall
be removed from the Board. As long as Xxxxxxx'x employment
has not been terminated as a result of his death,
disability, termination for cause or voluntary resignation,
the Independent Director shall be removed from the Board
only upon the mutual agreement of Xxxxxxx and Cornerstone,
or at the expiration of the Independent Director's three
year term.
2.3.4 Vacancy: In the event that any director designated
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hereunder by any particular Stockholder 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 director designated by the Stockholder who was entitled
to designate such director in accordance with the provisions
of Section 2.3.2.
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2.3.5 Compensation: Xxxxxxx and Cornerstone shall agree upon a
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mutually acceptable compensation package for directors who
are Independent Third Parties and not employed by the
Company.
2.3.6 Quorum: A quorum of the Board of Directors shall be
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constituted only if three of the five directors are present
at meetings of the Board of Directors for purposes of
transacting business; provided, however, that one of the
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three directors present must be a Xxxxxxx Director and one
of the three directors present must be a Cornerstone
Director.
2.3.7 Vote: The adoption of any resolution, or the approval of
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any action, by the Board of Directors shall require the
affirmative approval of at least a majority of all of the
members of the Board of Directors (not just of those present
and voting).
2.3.8 Meetings: The Board of Directors shall meet as indicated
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in the Bylaws.
2.3.9 Committees: Any committee of the Board shall be created
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only upon the approval of at least three members of the
Board; provided, however, that one of the three members must
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be a Xxxxxxx Director and one of the three members must be a
Cornerstone Director.
ARTICLE 3.
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RESTRICTIONS ON TRANSFER
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3.1 Restrictions on Transfers. Until the third anniversary of the date of
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the Closing of the Acquisition, no Stockholder shall, at any time, without the
express prior written consent of the Other Stockholder, sell, transfer,
encumber, assign, mortgage, alienate, pledge, hypothecate or in any manner
dispose of, directly or indirectly, whether by voluntary or involuntary
disposition (a "Transfer"), any Stockholder Shares owned by such Stockholder.
3.2 Restrictions on Certificates. Each certificate evidencing Stockholder
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Shares and each certificate issued in exchange for or upon the transfer of any
Stockholder Shares (if such shares remain subject to the transfer restrictions
after such transfer) shall be stamped or otherwise imprinted with legends in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES
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ACT"), AND SUCH SHARES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS AGAINST TRANSFER SET FORTH IN A STOCKHOLDERS AGREEMENT
DATED AS OF MARCH 31,1997, AMONG THE ISSUER OF SUCH SECURITIES (THE
"COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH
STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY
TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof.
3.3 Right of First Refusal. At least sixty (60) days prior to making any
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Transfer of any Stockholder Shares by a transferring Stockholder to any Person
other than the Company or another Stockholder, the transferring Stockholder (the
"Share Transferor") shall deliver a written notice (the "Notice") to Company and
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the non-transferring Stockholder. The Notice shall disclose in reasonable detail
the proposed number of Stockholder Shares to be transferred, the identity of the
proposed transferee and the proposed terms and conditions of the Transfer. The
non-transferring Stockholder may elect (i) to purchase Stockholder Shares from
the Transferor pursuant to this Section 3.3 or (ii) participate in the sale of
Stockholder Shares pursuant to the non-transferring Stockholder's right of co-
sale in Section 3.4. If the non-transferring Stockholder elects to purchase all
(but not less than all) of the Stockholder Shares specified in the Notice at the
price and on the terms specified therein the non-transferring Stockholder shall
deliver written notice of such election to the Transferor as soon as practical
but in any event within thirty (30) days after the delivery of the Notice. If
the non-transferring Stockholder has elected to purchase Stockholder Shares from
the Share Transferor, the transfer of such shares shall be consummated as soon
as practical after the delivery of the election notice, but in any event within
sixty (60) days after the delivery of the Notice. If the non-transferring
Stockholder has not elected to purchase all of the Stockholder Shares being
offered, the Share Transferor may, within ninety (90) days after the delivery of
the Notice, transfer such Stockholder Shares, subject to the provisions of
Section 3.4, to the transferee named in the Notice at a price no less than the
price per share specified in the Notice and on other terms no more favorable to
the transferee than offered to the non-transferring Stockholder in the Notice.
The purchase price specified in any Notice shall be payable solely in cash at
the closing of the transaction.
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3.4 Right of Co-Sale. Notwithstanding the provisions of Section 3.3, at
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least sixty (60) days prior to making any Transfer of any Stockholder Shares by
a transferring Stockholder to any Person other than the Company or another
Stockholder, the Share Transferor shall deliver a written notice (the "Sale
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Notice") to the Company and the non-transferring Stockholder. The Sale Notice
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shall disclose in reasonable detail the proposed number of Stockholder Shares to
be transferred, the identity of the prospective transferee and the proposed
terms and conditions of the Transfer. The non-transferring Stockholder may elect
to participate in the contemplated Transfer by delivering written notice to the
Share Transferor within thirty (30) days after delivery of the Sale Notice. If
the non-transferring Stockholder has elected to participate in such Transfer,
the non-transferring Stockholder shall be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of Stockholder
Shares equal to the product of (i) the quotient determined by dividing the
percentage of Stockholder Shares owned by such Person by the aggregate
percentage of Stockholder Shares owned by all of the Stockholders participating
in such sale and (ii) the number of Stockholder Shares to be sold in the
contemplated Transfer.
3.5 Permitted Transfers. The restrictions contained in this Article 3
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shall not apply with respect to any Transfer of Stockholder Shares by any
Stockholder (i) in the case of Xxxxxxx, pursuant to applicable laws of descent
and distribution or among Xxxxxxx'x Family Group or (ii) in the case of
Cornerstone, among its Affiliates (collectively referred to herein as "Permitted
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Transferees"); provided that the restrictions contained in this Article 3 shall
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continue to be applicable to the Stockholder Shares after any such Transfer and
provided further that 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.
3.6 Transfers. Prior to transferring any Stockholder Shares to any
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Person, the transferring Stockholder shall cause the prospective transferee to
execute and deliver to the Company and the Other Stockholder a counterpart of
this Agreement.
3.7 Transfers in Violation of Agreement. Any Transfer or attempted
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Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company 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.
ARTICLE 4.
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REGISTRATION RIGHTS
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4.1 Request for Registration. Xxxxxxx shall have a one-time right to
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demand that the Company file a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act") covering the registration of the
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shares of Common Stock held beneficially by Xxxxxxx (the "Registrable
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Securities").
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4.1.1 The demand registration right shall not be exercised during
any of the following periods: (i) the period commencing on
the Closing Date of the Acquisition and ending on the
earlier to occur of (x) the date of an initial public
offering of the equity securities of Cornerstone and (y)
that date which is three years following the Closing of the
Acquisition, and (ii) the 24 month period following the
effective date of an initial public offering of the equity
securities of Cornerstone.
4.1.2 Xxxxxxx agrees not to exercise his demand registration right
unless (i) the offering proposed by him is firmly
underwritten by one of the investment banking firms set
forth on Schedule 5.1 hereto or an investment banking firm
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of comparable size and reputation, and (ii) if Xxxxxxx
exercises his demand registration right prior to such time
as Cornerstone effects an initial public offering of its
equity securities, such investment banker reasonably
believes that it can effect an offering of the Company's
equity securities at a valuation which would provide a total
market capitalization of the Company immediately following
the closing of such offering of at least $100 million.
4.1.3 The demand registration right described herein shall
terminate on the earliest to occur of (v) the initial public
offering of the equity securities of the Company, (w) 24
months following the expiration of any "lock-up" period
mandated by the managing underwriter of the initial public
offering of Cornerstone's equity securities, (x) the date of
the Reorganization (defined below), (y) a transfer by
stockholders of the Company of more than 50% of the
outstanding capital stock of the Company (computed on a
fully-diluted basis), provided that such selling
stockholders have fully complied with the co-sale provisions
of Section 3.4 and (z) a merger or consolidation of the
Company, provided that the Company has fully complied with
the provisions of Section 2.2 and Xxxxxxx has received at
least thirty (30) days written notice of such sale.
4.1.4 The Company shall, within ten (10) days of the receipt of
such a request for registration, use its reasonable best
efforts to effect as soon as practicable the registration
under the Securities Act of all Registrable Securities which
Xxxxxxx requests to be registered.
4.1.5 The right of Xxxxxxx to include his Registrable Securities
in a registration shall be conditioned upon his
participation in the firm underwriting. Xxxxxxx hereby
agrees (together with the Company) to enter into an
underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting
pursuant to Section 4.1.2 above, containing customary
provisions with respect to indemnification
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and contribution and providing customary representations and
warranties by the Company (which shall be made to and for
the benefit of the underwriters and Xxxxxxx).
Notwithstanding any other provision of this Section 4.1, if
the underwriter advises Xxxxxxx in writing that marketing
factors require a limitation of the number of shares to be
underwritten because including all of such securities would
jeopardize the success of the offering, then the number of
shares of Registrable Securities that may be included in the
underwriting shall be reduced accordingly. Any Registrable
Securities excluded or withdrawn from such underwriting
shall be withdrawn from the registration. The Company is
obligated to effect only one registration pursuant to this
Section 4.1.
4.1.6 Notwithstanding the foregoing, if the Company shall furnish
to Xxxxxxx a certificate signed by one of the Cornerstone
Directors, stating that in the good faith judgment of the
Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore
essential to defer the filing of such registration
statement, the Company shall have the right to defer
performance of its obligations pursuant to this Section 4.1
for a period of not more than one hundred eighty (180) days
after receipt of the request of Xxxxxxx; provided, however,
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that the Company may not utilize this right more than once.
Notwithstanding the right of the Company to defer
registration for 180 days, if such deferral would otherwise
cause a termination of the demand registration right to
occur pursuant to Section 4.1.3(w), Xxxxxxx'x right to
demand registration shall extend for an additional 180 days.
4.2 Company Registration.
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4.2.1 If (but without any obligation to do so) the Company
proposes to register (including for this purpose a
registration effected by the Company for stockholders other
than Xxxxxxx) any of its stock or other securities under the
Securities Act in connection with the public offering of
such securities solely for cash, the Company shall, at each
such time, promptly give Xxxxxxx written notice of such
registration. Upon the written request of Xxxxxxx given
within twenty (20) days after the mailing of such notice of
the Company, the Company shall, subject to the provisions of
subsection 4.2.2, cause to be registered under the
Securities Act all of the Registrable Securities that
Xxxxxxx has requested to be registered; provided, however,
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that the Company shall not be required to give notice or
include such Registrable Securities in any such registration
if the proposed registration relates solely to (i)
securities to be offered to employees pursuant to a stock
option, stock savings or other employee benefit plan; (ii)
securities
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proposed to be issued in exchange for securities or assets
of, or in connection with a merger or consolidation with,
another corporation; (iii) securities to be offered by the
Company generally to any class or series of its then
existing security holders; (iv) securities issuable upon
conversion of securities which are the subject of an
underwritten redemption; or (v) securities to be offered or
issued pursuant to a combination of transactions referred to
in clauses (i) through (iv).
4.2.2 The Company may, at its sole discretion and without the
consent of Xxxxxxx, withdraw such registration statement and
abandon the proposed offering. If the proposed primary or
secondary offering does not include Registrable Securities
and if, in the opinion of the proposed managing underwriter,
it is not feasible to effect such primary or secondary
offering in conjunction with the offering of the Registrable
Securities, the Company may proceed with the registration of
shares in such primary or secondary offering without
including the Registrable Securities. The Company may, at
its option, require that the number of Registrable
Securities offered for sale by Xxxxxxx be decreased if, in
the reasonable opinion of the proposed managing underwriter,
such reduction is desirable. If the Company shall require
such a reduction, Xxxxxxx shall have the right to withdraw
from the offering.
4.2.3 Cornerstone shall cause Xxxxxxx to become a party to the
Registration Agreement dated September 13, 1995, as amended,
between Cornerstone and its investors and to cause any
shares of capital stock of Cornerstone acquired by Xxxxxxx
(i) in the Reorganization and (ii) upon the exercise of the
warrants granted to Xxxxxxx as of the date hereof pursuant
to that certain Stock Purchase Warrant between Cornerstone
and Xxxxxxx, to have the benefit of the piggyback
registration rights set forth therein.
4.3 Obligations of the Company.
--------------------------
Whenever required under Section 4.1 or 4.2 of this Agreement to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
4.3.1 Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such
---
Registrable Securities and use its reasonable best efforts
to cause such registration statement to become effective,
and, upon the request of Xxxxxxx, keep such registration
statement effective for up to ninety (90) days.
13
4.3.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
4.3.3 Furnish to Xxxxxxx such number of copies of the registration
statement and each amendment and supplement thereto, and
such number of copies of the prospectus, including each
summary, preliminary, final, amended or supplemental
prospectus, in conformity with the requirements of the
Securities Act, and such other documents as he may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by him.
4.3.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by Xxxxxxx, provided that the
Company shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.
4.3.5 In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter
of such offering.
4.3.6 Notify Xxxxxxx, at any time when a prospectus relating
thereto covered by such registration statement 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, as then in effect, includes an
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances then existing.
4.3.7 Furnish to Xxxxxxx and to each underwriter, if any, a signed
counterpart, addressed to Xxxxxxx and such underwriter, of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who
have issued a report on the Company's financial statements
included in such registration statement, in each case
covering substantially the same matters
14
with respect to such registration statement (and the
prospectus included therein) and, in the case of such
accountant's letter, with respect to events subsequent to
the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public
offerings of securities.
4.3.8 Use its best efforts (i) to cause all the securities covered
by such registration statement to be listed on a national
securities exchange (if such securities are not already so
listed) and on each additional national securities exchange
on which similar securities issued by the Company are then
listed, if the listing of such securities is then permitted
under the rules of such exchange or (ii) to secure
designation of all such securities covered by such
registration statement as a Nasdaq "national market system
security" within the meaning of Rule 11Aa2-1 under the 1934
Act, or failing that, to secure Nasdaq authorization for
such securities and, 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
National Association of Securities Dealers, Inc.
4.3.9 As soon as practicable after the effective date of the
registration statement, and in any event within 16 months
thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the
Securities Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Securities Act
and covering a period of at least twelve (12) consecutive
months beginning after the effective date of the
registration statement.
4.3.10 Deliver promptly to counsel for Xxxxxxx and the managing
underwriter copies of all correspondence between the SEC and
the Company, its counsel or auditors and all memoranda
relating to discussions with the SEC or its staff with
respect to the registration statement and permit Xxxxxxx and
each underwriter and any attorney, accountant or other
representative retained by them to do such investigation,
upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as
it deems reasonably necessary. Such investigation shall
include access to books, records and properties and
opportunities to discuss the business of the Company with
its officers and independent auditors during normal business
hours.
4.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement with
respect to Xxxxxxx that Xxxxxxx shall furnish to the Company such information
regarding itself, the Registrable Securities held by Xxxxxxx and the intended
method of disposition of such securities as shall be reasonably required
15
to effect the registration of the Registrable Securities and to execute such
documents that are necessary or customary in connection with such registration
as the Company may reasonably request.
4.5 Expenses of Demand Registration. All expenses other than underwriting
-------------------------------
discounts and commissions incurred in connection with the underwriting,
registrations, filings or qualifications pursuant to Section 4.1, including,
without limitation, all registration, filing and qualification fees, printing
and accounting fees, and the fees and disbursements of counsel for the Company
and one counsel for Xxxxxxx shall be borne by the Company.
4.6 Expenses of Company Registration. All expenses other than
--------------------------------
underwriting discounts and commissions incurred in connection with the
underwriting, registrations, filings or qualifications pursuant to Section 4.2,
including, without limitation, all registration, filing and qualification fees,
printing and accounting fees, and the fees and disbursements of counsel for the
Company shall be borne by the Company.
4.7 Underwriting Requirements. The Company shall not be required to
-------------------------
include any of Xxxxxxx'x securities in an underwritten offering of the Company's
securities unless Xxxxxxx accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, including the
underwriting discounts and commissions. If the total amount of securities,
including Registrable Securities, requested by stockholders to be included in
such offering exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, then the Company shall be
required to include in the offering only that number, if any, of such
securities, including Registrable Securities, which the underwriters believe
will not adversely affect the success of the offering. Whether or not included
in such underwriting, if so requested by the proposed managing underwriter,
Xxxxxxx (as to any other shares of Common Stock owned by him) shall join in any
agreement by other significant stockholders of the Company to refrain from sales
of shares of Common Stock for up to 180 days following commencement of the
offering.
4.8 Delay of Registration. Xxxxxxx shall not have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
4.9 Rule 144. If the Company shall have filed a registration statement
--------
pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended (the "1934 Act") or a registration statement pursuant to the
--------
requirements of the Securities Act, the Company will timely file the reports
required to be filed by it under the Securities Act or the 1934 Act (including
but not limited to the reports under Section 13 and 15(d) of the 1934 Act
referred to in subparagraph (c)(1) of Rule 144) and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file such
reports, will make publicly available other information), and will take such
further action as Xxxxxxx may reasonably request, all to the extent required
from time to time to enable Xxxxxxx to sell Registrable Securities without
16
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144, as such Rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the SEC. Upon the request of
Xxxxxxx, the Company will deliver to Xxxxxxx a written statement as to whether
it has complied with such requirements.
4.10 Registration Rights to Others. If the Company shall at any time
-----------------------------
provide to any holder of capital stock of the Company (whose percentage
ownership of such capital stock is equal to or within 5% of the percentage
ownership of such capital stock held by Xxxxxxx), rights with respect to the
registration of such securities under the Securities Act on terms or conditions
more favorable to such holder than the terms and conditions provided herein, the
Company shall provide (by way of amendment to this agreement or otherwise) such
more favorable terms or conditions to Xxxxxxx.
4.11 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Agreement:
4.11.1 To the extent permitted by law, the Company will indemnify
and hold harmless Xxxxxxx against any losses, claims,
damages or liabilities to which he may become subject under
the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or
violations (collectively, a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (ii) the omission
or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the
1934 Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the 1934 Act or any
state securities law; and the Company will reimburse Xxxxxxx
for any legal or other expenses reasonably incurred by him
in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
--------- -------
the indemnity agreement contained in this Section shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not
be unreasonably withheld, nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon
a Violation which occurs in reliance
17
upon and in conformity with information furnished in writing
for use in connection with such registration by, or on
behalf of, Xxxxxxx.
4.11.2 To the extent permitted by law, Xxxxxxx will indemnify and
hold harmless the Company, each of its officers, directors,
agents or employees, and each Person, if any, who controls
the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities to which
the Company or any such director, agent, employee, officer
or controlling Person, may become subject, under the
Securities Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon
any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in
conformity with information furnished in writing by, or on
behalf of, Xxxxxxx for use in connection with such
registration; and Xxxxxxx will reimburse any legal or other
expenses reasonably incurred by the Company or any such
agent, employee, director, officer or controlling Person, in
connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however,
--------- -------
that the indemnity agreement contained in this Section shall
not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is
effected without the consent of Xxxxxxx, which consent shall
not be unreasonably withheld.
4.11.3 Promptly after receipt by an indemnified party under this
Section 4.11 of notice of the commencement of any action
(including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 4.11, deliver to
the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however,
--------- -------
that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel
for the indemnified party, representation of such
indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party
and
18
any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time of the
commencement of any such action shall relieve such
indemnifying party of any liability to the indemnified party
under this Section 4.11 to the extent prejudicial to its
ability to defend such action, but the omission so to
deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 4.11.
4.11.4 If the indemnification provided for in this Section 4.11 is
held by a court of competent jurisdiction to be unavailable
to an indemnified party or insufficient to hold it harmless
with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and
of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be
determined by reference to, among other things whether the
untrue or alleged untrue statements of a material fact or
the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such
statement or omission.
ARTICLE 5.
----------
PUBLIC OFFERING
---------------
5.1 Request for Public Offering. At the request of Xxxxxxx, the Company
---------------------------
shall retain an investment banking firm mutually agreeable to Xxxxxxx and
Cornerstone for the purpose of advising the Board of Directors of the Company on
the advisability of effecting a public offering of the securities of the
Company. Attached hereto as Schedule 5.1 is a list of the investment banking
------------
firms mutually acceptable to Xxxxxxx and Cornerstone from which the Board of
Directors may select (assuming that the investment banking firm selected has not
been engaged by Cornerstone within 12 months of such selection) an investment
banking firm to advise the
19
Board on the advisability of effecting a public offering. In so advising the
Board, such investment banking firm shall take into account the capital
requirements of the Company, the relative cost to the Company of financing the
Company's capital requirements in the public market or through available credit
facilities in the private markets, valuations of companies comparable to the
Company in initial public offerings, the condition of the initial public
offering market and other factors which it deems relevant.
5.2 Approval of Board of Directors. Following the report of the investment
------------------------------
banking firm, each of Xxxxxxx and Cornerstone agrees that the Company may effect
a public offering of its securities if such offering is approved by a majority
of the directors on the Company's Board of Directors. In such a case, the
Company shall effect a public offering of its securities at the times and on the
terms approved by a majority of the directors. Attached hereto as Schedule 5.1
------------
is a list of the investment banking firms mutually acceptable to Xxxxxxx and
Cornerstone from which the Board of Directors may select (assuming that the
investment banking firm selected has not been engaged by Cornerstone within 12
months of such selection) an investment banking firm to effect the public
offering.
5.3 Restrictions on Public Offering. Notwithstanding the foregoing, unless
-------------------------------
approved by Cornerstone, the Company shall not effect a public offering of the
equity securities of the Company during the following periods: (i) the period
commencing on the Closing Date of the Acquisition and ending on the earlier to
occur of (x) the date of an initial public offering of the equity securities of
Cornerstone and (y) that date which is three years following the Closing of the
Acquisition, and (ii) the 24 month period following the effective date of an
initial public offering of the equity securities of Cornerstone.
5.4 Cornerstone Public Offering. Notwithstanding the foregoing, the
---------------------------
Company shall defer its public offering if, within thirty (30) days of its
decision to proceed with a public offering, Cornerstone delivers notice to the
Company that its Board of Directors has determined in good faith to proceed with
a public offering of the securities of Cornerstone. In such case, the Company
agrees to defer its offering for a period of one hundred eighty (180) days,
after which time the Company will proceed with its offering if Cornerstone has
not yet filed a registration statement with the SEC. If Cornerstone has filed a
registration statement with the SEC, the Company shall defer its offering until
expiration of the 24 month period following the effective date of the initial
public offering of the equity securities of Cornerstone.
ARTICLE 6.
----------
REORGANIZATION
--------------
6.1 Request for Reorganization. At any time following the Closing of the
--------------------------
Acquisition, Xxxxxxx shall, upon 90 days written notice to Cornerstone, have the
right to cause Cornerstone and the Company to effect a reorganization (the
"Reorganization"), which shall be structured,
--------------
20
if possible, as a tax-free reorganization, pursuant to which the Company shall
be merged with a wholly-owned subsidiary of Cornerstone in a merger which will
result in the issuance of shares of common stock of Cornerstone for the shares
of Common Stock of the Company held by Xxxxxxx such that immediately following
the merger, the Company shall be wholly-owned by Cornerstone and Xxxxxxx shall
hold shares of common stock of Cornerstone.
6.2 Merger Consideration. The number of shares of common stock of
--------------------
Cornerstone which Xxxxxxx shall receive in the Reorganization shall be equal to
the product of (i) a fraction, the numerator of which is the Fair Market Value
(as defined below) of the Company and the denominator of which is the Fair
Market Value of Cornerstone and the Company combined, multiplied by (ii)
Xxxxxxx'x then percentage ownership of the Company's outstanding capital stock,
multiplied by (iii) the total number of shares of common stock of Cornerstone to
be outstanding after the Reorganization on a fully-diluted basis giving effect
to the conversion of outstanding preferred stock convertible into common stock
of Cornerstone, and to the exercise of all outstanding vested and in-the-money
options or warrants to purchase common stock of Cornerstone, but not to the
conversion of convertible notes, and after the issuance of the shares to
Xxxxxxx. For purposes of this Agreement, "Fair Market Value" shall be determined
-----------------
as to either Cornerstone or the Company, as applicable, by reference to the
aggregate price at which each such company as a going concern, could be sold in
an arm's-length transaction to an unaffiliated bona fide third party, at the
time the notice referred to in Section 6.1 is given, in an orderly sale without
regard to the lack of liquidity of its common stock and shall be determined, at
the sole cost and expense of Cornerstone, by an investment bank mutually
acceptable to Cornerstone and Xxxxxxx; provided that if Cornerstone and Xxxxxxx
cannot mutually agree upon an investment bank, then the bank shall be selected
from the list attached as Schedule 5.1.
------------
6.3 Termination of Right to Request Reorganization. The right of Xxxxxxx
----------------------------------------------
to cause Cornerstone and the Company to effect the Reorganization shall
terminate on the earlier to occur of the following, (A) 10 days prior to the
effective date of the initial public offering of the securities of Cornerstone
provided that such offering (i) results in gross proceeds to Cornerstone and its
selling stockholders of at least $10 million and (ii) is effected at a valuation
which results in a post offering market capitalization of Cornerstone of at
least $150 million, (B) the effective date of any public offering of Common
Stock of the Company effected pursuant to Section 4.1 or Article 5 of this
Agreement, (C) a transfer by stockholders of the Company of more than 50% of the
outstanding capital stock of the Company (computed on a fully-diluted basis),
provided that such selling stockholders have fully complied with the co-sale
provisions of Section 3.4, (D) a sale of all or substantially all of the
Company's assets to a third party, provided that the Company has fully complied
with the provisions of Section 2.2 and Xxxxxxx has received at least thirty (30)
days written notice of such sale and (E) a sale of all or substantially all of
the capital stock or assets of Cornerstone, or a merger involving Cornerstone,
provided that Xxxxxxx receives 30 days prior written notice of such sale or
merger, which notice shall include full and complete disclosure of the terms and
conditions of such sale or merger, so that Xxxxxxx may effect a Reorganization
prior to the effective date of such sale or merger.
21
ARTICLE 7.
----------
TERMINATION
-----------
7.1 Termination by Consent. Except as otherwise provided in this
----------------------
Agreement, this Agreement may be terminated by the written consent of all
parties hereto.
7.2 Termination/Modification upon Certain Events.
--------------------------------------------
7.2.1 The provisions of Section 2.2 shall terminate upon the
earlier to occur of the following: (i) the closing of the
initial public offering pursuant to an effective
registration statement under the Securities Act, covering
the offer and sale of equity securities for the account of
the Company, (ii) the effective date of the Reorganization,
(iii) the date Xxxxxxx is no longer employed by the Company
for any reason other than a termination without cause, (iv)
the date on which Xxxxxxx beneficially owns less than 25%
of the Company's Common Stock which he owned on the Closing
Date of the Acquisition and (v) the closing of the initial
public offering pursuant to an effective registration
statement under the Securities Act, covering the offer and
sale of equity securities for the account of Cornerstone;
provided, however, that with regard to (v), Section 2.2
shall terminate only if the Company is a "Significant
Subsidiary" (as such term is defined in Rule 1-02 of
Regulation S-X, but changing 10% to 5% therein) of
Cornerstone after the closing of the initial public offering
and the initial public offering is effected at a valuation
that results in a post offering market capitalization of
Cornerstone of at least $150 million.
7.2.2 The provisions of subsections 2.2.1, 2.2.5, 2.2.7, 2.2.8,
2.2.9, 2.2.10 and 2.2.12 shall terminate on the date Xxxxxxx
is no longer employed by the Company as a result of a
termination without cause. On such date of termination, the
provisions of subsection 2.2.6 shall be modified to read in
full as follows: "Any material transaction between the
Company and any of its Affiliates, other than the
declaration of a dividend on the securities of the Company,
on a basis more favorable than could be obtained in an arm's
length transaction." Notwithstanding the foregoing,
subsections 2.2.2, 2.2.3, 2.2.4 and 2.2.11 shall continue in
full force and effect.
7.2.3 The provisions of Section 2.3 shall terminate upon the
earlier to occur of the following: (i) the closing of the
initial public offering pursuant to an effective
registration statement under the Securities Act, covering
the offer and sale of equity securities for the account of
the Company, (ii) the
22
effective date of the Reorganization, (iii) the closing of
the initial public offering pursuant to an effective
registration statement under the Securities Act, covering
the offer and sale of equity securities for the account of
Cornerstone, (iv) the date on which Xxxxxxx beneficially
owns less than 25% of the Company's Common Stock which he
owned on the Closing Date of the Acquisition and (v) the
date Xxxxxxx is no longer employed by the Company for any
reason other than a termination without cause.
7.2.4 Upon the closing of the Company's initial public offering of
Common Stock pursuant to an effective Registration Statement
under the Securities Act, the provisions of Article 3 shall
be modified as follows:
7.2.4.1 The provisions of Sections 3.1, 3.3, 3.4 and 3.6
shall not apply with respect to any Transfer of Stockholder
Shares (i) pursuant to an effective Registration Statement
filed under the Securities Act or (ii) in compliance with
Rule 144 promulgated under the Securities Act; and
7.2.4.2 The provisions of Section 3.2, 3.5 and 3.7 shall
continue to apply.
7.2.5 Following a transfer by stockholders of the Company of more
than 50% of the outstanding capital stock of the Company
(computed on a fully-diluted basis), provided that such
selling stockholders have fully complied with the co-sale
provisions of Section 3.4, or following a sale of all or
substantially all of the Company's assets to a third party,
by merger, sale of assets or otherwise, provided that the
Company has fully complied with the provisions of Section
2.2 and Xxxxxxx has received at least thirty (30) days
written notice of such sale, the provisions of Sections 3.3
and 3.4 shall terminate.
7.2.6 If at the time Cornerstone determines to effect a public
offering of its securities, the managing underwriter of such
offering advises Cornerstone that the existence of Xxxxxxx'x
rights pursuant to the terms of this Agreement would
materially interfere with the marketing of such offering,
Xxxxxxx agrees to discuss an appropriate modification of
such rights; provided, however, that Xxxxxxx shall have no
--------- -------
obligation to modify or amend such rights.
23
ARTICLE 8
---------
CLOSING PAYMENTS/AGREEMENTS
---------------------------
8.1 Closing Payments. On the Closing Date of the Acquisition, the Company
----------------
and Xxxxxxx will terminate Xxxxxxx'x employment agreement dated as of March 23,
1993 (the "Prior Employment Agreement") pursuant to that certain Termination
Agreement dated the Closing Date, between Xxxxxxx and the Company, and the
Company shall pay to Xxxxxxx on the calendar day immediately following the
Closing Date of the Acquisition, by wire transfer, the sum of $2,462,500 in
complete satisfaction of Xxxxxxx'x agreement to terminate the stock appreciation
rights referred to in Section 5 of the Prior Employment Agreement.
8.2 Loan to Xxxxxxx. At the Closing of the Acquisition, the Company agrees
---------------
to loan to Xxxxxxx $1,728,000 pursuant to the terms of that certain Loan and
Security Agreement between the Company and Xxxxxxx in substantially the form of
Exhibit "A" attached hereto.
----------
8.3 Guarantee of Bank Facility. Subject to the provisions of this Section
--------------------------
8.3, Cornerstone hereby agrees to guarantee a bank facility to provide for the
working capital needs of the Company, such facility to be in the estimated
principal amount of $7.75 million for 1997, $10.75 million for 1998 and $13.0
million for 1999 (each of which amounts are in addition to the amount of any
borrowings the Company effects in connection with or to facilitate the
Acquisition referred to herein and all other related transactions, and with
appropriate increases thereafter based upon the size and growth of the business
of the Company, as approved by the Company's Board of Directors). Upon the
execution and delivery of such guaranty by Cornerstone to the Company's bank,
Cornerstone and the Company shall enter into a customary indemnification
agreement. Cornerstone may, in its sole discretion, provide or cause to be
provided to the Company a credit facility with Cornerstone's lender in lieu of a
guaranty on terms which are not materially less advantageous to the Company than
those which may be obtained by the Company independently. Cornerstone covenants
to either, at its option, guarantee a bank facility for the working capital
needs of the Company or to provide to the Company a credit facility with
Cornerstone's lender within 90 days of the date of this Agreement; provided,
--------
however, that if the bank or credit facility referred to in this sentence is not
-------
in place within 90 days of the date hereof, Cornerstone agrees that the
promissory note dated the date hereof between Cornerstone and the Company in the
principal amount of Four Million One Hundred Eighty-Nine Thousand Seven Hundred
Forty-Two Dollars and Seventy-One Cents ($4,189,742.71) shall be extended until
such time as the bank or credit facility is in place. Cornerstone's obligation
to guarantee the bank facility is subject to standard asset-based lending tests,
such as customary coverage tests based on inventory and receivables eligible as
security, coverage ratios and cash flow and net income maintenance covenants
relating to the Company. Cornerstone hereby agrees that if such standard lending
tests are met, Cornerstone will guarantee the full amounts of the bank facility
set forth in the first sentence of this Section 8.3. To the extent such standard
lending tests are not met, Cornerstone shall not be obligated to provide or
maintain such guaranty for any amounts not then outstanding. In addition, if
such standard
24
lending tests are not met, and if the lender under the facility referred to
above declines to lend the full amount of the facility required, Cornerstone
may, but is not obligated to, contribute to the Company the difference between
the required amount and the amount the lender will fund. Until March 31, 2000,
any amounts invested by Cornerstone in the Company shall be in the form of debt,
rather than additional purchases of equity. Cornerstone and the Company
acknowledge that the facility is anticipated to be a revolving credit facility
from a commercial bank with an established national or regional reputation, on
such terms and conditions as are customary in facilities of this type from
lenders of this type, with an interest rate equal to Cornerstone's interest rate
on its primary credit facility. Cornerstone's obligation to provide any such
guaranty shall terminate upon (i) a transfer by stockholders of the Company of
more than 50% of the outstanding capital stock of the Company (computed on a
fully-diluted basis), (ii) a sale of all or substantially all of the assets of
the Company to a third party, by sale of assets, merger or otherwise, or (iii)
such time as Cornerstone owns all of the outstanding capital stock of the
Company.
8.4 Stock Option Plan. Attached hereto as Exhibit "B" is a copy of the
----------------- ----------
Stock Option Plan of Cornerstone. The Board of Directors of Cornerstone have
taken all action necessary to reserve for issuance to directors and senior
management employees of the Company options to purchase the common stock of
Cornerstone. At the Closing of the Acquisition, Cornerstone shall have reserved
for issuance options to purchase 316,667 shares of the common stock of
Cornerstone for issuance to directors and senior management employees of the
Company, all of which options, upon issuance, will vest ratably over four (4)
years and be exercisable within seven (7) years after the grant date pursuant to
the terms of the Stock Option Plan of Cornerstone. Of the options to purchase
316,667 shares reserved for issuance, options to purchase at least 126,667
shares shall be granted to Xxxxxxx as described in the following sentences. At
the Closing of the Acquisition, fifty percent (50%) of the options reserved for
issuance, or options to purchase 158,334 shares of common stock of Cornerstone
shall be granted at an exercise price of $6.00 per share as follows: (i) options
to purchase 63,334 shares of the common stock of Cornerstone shall be issued to
Xxxxxxx pursuant to a separate Option Agreement between Xxxxxxx and Cornerstone
to be entered into between the parties within five business days of the Closing
Date of the Acquisition and (ii) options to purchase 95,000 shares of the common
stock of Cornerstone shall be issued to senior management employees of the
Company, as directed by Xxxxxxx, each of which grant shall be evidenced by a
separate Option Agreement between Cornerstone and such designated senior
management employee. Of the 316,667 shares reserved for issuance above, the
remaining fifty percent (50%), or options to purchase 158,333 shares of the
common stock of Cornerstone, shall be granted as follows: (i) options to
purchase 63,333 shares will be issued to Xxxxxxx no later than April 15, 1997 at
a fair market value exercise price of $6.00 per share and (ii) options to
purchase 95,000 shares at an exercise price equal to fair market value shall be
granted to senior management employees and/or directors of the Company as
directed by a committee of the Board of Directors of the Company authorized by
the Board of Directors to identify such senior management employees and/or
directors and to make such grants.
25
8.5 Sourcing Organization. Immediately following the Closing of the
---------------------
Acquisition, Cornerstone and Xxxxxxx undertake in good faith to explore the
creation of a separate organization to provide for international sourcing of
product for the Company, Cornerstone and its Affiliates.
8.6 Employment Agreement. At the Closing of the Acquisition, Cornerstone
--------------------
will cause the Company to enter into a five-year employment agreement with
Xxxxxxx pursuant to the terms of the Employment Agreement in the form of Exhibit
-------
"C" attached hereto.
--
8.7 Payment of Expenses. At the Closing of the Acquisition, the Company
-------------------
shall pay all of the legal fees and expenses of Xxxxxxx in connection with the
Acquisition and related agreements. Cornerstone shall be responsible for payment
of its own expenses in connection with the Acquisition and related transactions.
ARTICLE 9
---------
DISPUTE RESOLUTION
------------------
9.1 Purpose and Intent of Parties. In the event of a dispute between the
-----------------------------
Stockholders, each Stockholder agrees that to the extent any such dispute shall
not be resolved by voluntary agreement of the parties, such dispute shall be
finally settled by arbitration in accordance with the provisions set forth below
and that any such circumstance shall not constitute a grounds for termination of
this Agreement or the withholding of performance under this Agreement. There
shall be no resort to the courts by the parties in connection with such matters
except to specifically enforce this covenant to arbitrate or to enforce the
outcome of an arbitration. This Article shall not apply, however, in the event
of any litigation or proceeding commenced by a third party against a party in
which the other party is an indispensable party or potential third party
defendant.
The parties desire to provide for nonjudicial settlement of any claims
of breach of this Agreement. In furtherance of the purpose and objectives of the
parties, the parties shall settle all claims under this Agreement by means of
the alternative dispute resolution procedure described herein so that the
operation and maintenance of the Company as contemplated by this Agreement shall
not be jeopardized.
9.2 Resolution by Dispute Negotiation.
---------------------------------
9.2.1 In the event of any dispute or disagreement between or among
the parties described in this Agreement, then, upon the
written request of any party, each party with an interest in
the dispute shall appoint a designated representative of the
party whose task it will be to meet for the purpose of
endeavoring to resolve such dispute. The designated
representatives
26
shall meet as expeditiously as possible at a mutually
agreeable location as often as the parties reasonably deem
necessary to gather and furnish to the other all information
with respect to the matter in issue which the parties
believe to be appropriate and germane in connection with its
resolution. Such representatives shall discuss the problem
and/or negotiate in good faith in an effort to resolve the
dispute without the necessity of any formal proceeding.
9.2.2 During the course of such negotiation, all reasonable
requests made by one party to the other for information will
be honored in order that each of the parties may be fully
advised. The specific format for such discussions shall be
left to the discretion of the designated representatives,
but may include the preparation of agreed upon statements of
fact or positions furnished to the other parties. All verbal
and written communications between the parties and issued or
prepared in connection with this Section shall be deemed
prepared and communicated in furtherance of, and in the
context of, dispute settlement and shall not be admissible
in evidence (whether as an admission or otherwise) in any
proceedings under Sections 9.3 or 9.4 hereof for the
resolution of any such dispute.
9.2.3 No formal proceedings for the arbitration of such dispute
shall be commenced until either of the designated
representatives concludes in good faith that continued
negotiation of the matter in issue under this Section does
not appear likely to produce a mutually acceptable
resolution.
9.3 Summary Arbitration. Any dispute referred to in Section 9.1 hereof
-------------------
which is not resolved pursuant to Section 9.2 hereof may, by notice from any
Stockholder to the others, be made subject to resolution pursuant to this
Section 9.3 and in such event shall be resolved as follows:
9.3.1 If the dispute shall not be resolved to the mutual
satisfaction of the parties within ten (10) days after one
party gives the other written notice of its intention to
invoke the provisions of this Section then, upon the written
request of either party (the "Commencing Party"), the
------------------
dispute shall be submitted to a single arbitrator having
expertise with respect to the matter in dispute, which
arbitrator shall be selected by the mutual agreement of the
parties or, if they fail to agree upon an arbitrator within
20 days after the Commencing Party's request, by the
American Arbitration Association; provided, however, that
--------- -------
the other party shall have the right to object to the
summary arbitration proceeding of this Section and demand
full arbitration under Section 9.4 hereof.
27
9.3.2 Except as otherwise mutually agreed by the parties, the
arbitration shall be held in Santa Barbara, California.
Notwithstanding the provisions of this Section, the parties
shall act in good faith to mutually agree to hold an
arbitration at a location best corresponding to the location
of witnesses, records and experts relevant to the dispute
being arbitrated.
9.3.3 The arbitrator shall promptly commence the arbitration and
shall conduct the arbitration in such a manner (including
the allowance of such discovery as the arbitrator determines
is appropriate under the circumstances) and on such a
schedule as the arbitrator deems to be fair and reasonable
and to provide each party with an adequate opportunity to
present and support its position. Disputes involving matters
that require the mutual consent of the parties may be
resolved by the arbitrator simply meeting with the
representatives of each of the respective parties and
casting the deciding vote. Disputes relating to financial
matters affecting the disparate interests of the parties,
and disputes alleging a breach of contract, usually require
the presentation of detailed evidence in a process more
similar to a judicial proceeding. The arbitrator shall
resolve the dispute and give the parties written notice of
his decision, with the reasons therefor set out in full,
within 45 days after the arbitrator's selection (or a
shorter period if mutually agreed by the parties) and shall
have ten (10) days thereafter to reconsider and modify his
decision if either party so requests. Thereafter, the
arbitrator's decision shall be final, binding and
nonappealable.
9.3.4 The arbitrator shall have authority to award relief under
legal or equitable principles, including interim and
preliminary relief, and compensatory (but not punitive)
damages; provided, however, that the arbitrator may not
--------- -------
order the termination of any agreement among the parties,
although in the case of a contract for the providing of
services, the arbitrator may allow the other party to such
contract to seek an alternate means of obtaining the
services not being provided by the party which loses the
arbitration. The parties shall each pay, on a monthly basis,
one-half of all costs of the arbitrator and the reasonable
legal expenses of all parties.
9.3.5 Judgment upon the award rendered by the arbitrator may be
entered in any court having in personam and subject matter
jurisdiction. Each party hereby submits to the in personam
jurisdiction of the federal and state courts in any location
at which an arbitration may be held pursuant to this Section
for the purpose of confirming any such award and entering
judgment thereon.
28
9.4 Full Arbitration. Any dispute referred to in Section 9.1 hereof which
----------------
is not resolved pursuant to Section 9.2 hereof, and which is not made subject to
summary arbitration by the parties pursuant to Section 9.3 hereof, shall be
settled by arbitration held in Santa Barbara, California, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect except as specifically provided below:
9.4.1 The panel to be appointed shall consist of three (3)
independent arbitrators: one (1) independent arbitrator
selected by each of the parties, and a third independent
arbitrator selected by the two (2) party-selected
arbitrators. All arbitrators selected pursuant to this
subsection shall have expertise in the subject matter of the
arbitration.
9.4.2 The arbitrators shall allow such discovery as the
arbitrators determine appropriate under the circumstances
and shall resolve the dispute as expeditiously as
practicable, and, if reasonably practicable, within 120 days
after the selection of the arbitrators. The arbitrators
shall give the parties written notice of their decision with
the reasons thereof set out in full, and shall have 30 days
thereafter to reconsider and modify their decision if either
party so requests within ten (10) days after the decision.
Thereafter, the decision of the arbitrators shall be final,
binding and nonappealable.
9.4.3 The arbitrators shall have authority to award relief,
including relief for bad faith and arbitrary or capricious
action.
9.4.4 Judgment upon the award rendered by the arbitrators may be
entered in any court having in personam and subject matter
jurisdiction. Each party hereby submits to the in personam
jurisdiction of the federal and state courts in any location
at which an arbitration may be held pursuant to this Section
for the purpose of confirming any such award and entering
judgment thereon.
9.5 Continued Performance. The fact that the dispute resolution procedures
---------------------
specified in this Article shall have been or may be invoked shall not excuse any
party from performing its obligations under this Agreement, and during the
resolution of any such dispute, the parties shall continue to perform their
respective obligations in good faith, subject to any rights to terminate such
agreements, that may be available to either of them.
9.6 Criteria for Arbitration. In addition to the evidence and applicable
------------------------
law, the parties agree that the arbitrators in any arbitration proceeding may
consider the following:
9.6.1 The parties' need for a prompt, equitable resolution so that
a pending dispute will not undermine the success of their
Company; and
29
9.6.2 The purposes and objectives stated in this Agreement and the
other agreements among the parties.
ARTICLE 10.
-----------
MISCELLANEOUS
-------------
10.1 Amendment and Waiver. Except as otherwise provided herein, the
--------------------
provisions of this Agreement may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the prior written consent of both Xxxxxxx
and Cornerstone. 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.
10.2 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard to choice of
law provisions.
10.3 Assignment of Rights. This Agreement and the rights and obligations
--------------------
of the parties hereunder shall inure to the benefit of and be binding upon,
their respective successors, assigns and legal representatives. The rights of a
Stockholder under this Agreement may not be assigned or otherwise conveyed by
any Stockholder except in connection with a Transfer of Stockholder Shares which
is in compliance with this Agreement.
10.4 Ownership. Each Stockholder represents and warrants that he or it is
---------
the sole legal and beneficial owner of the Stockholder Shares subject to this
Agreement and that no other Person has any interest in such Stockholder Shares.
10.5 Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or five (5) days after deposit in the United States mail,
by registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth below or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties
hereto.
If to Cornerstone, to:
The International Cornerstone Group, Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. End
Facsimile: (000) 000-0000
30
with a copy to:
Xxxx and Xxxx LLP
000 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
If to Xxxxxxx, to:
Xxxxx Xxxxxxx
000 Xxxxxxxxx Xxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
with a copy to:
Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP
00000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: C.N. Xxxxxxxx Xxxxxxx III
Facsimile: (000) 000-0000
If to the Company, to:
The Territory Ahead, Inc.
000 Xxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
with a copy to:
Xxxx and Xxxx LLP
000 Xxxxx Xxxxxx
XXxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
10.6 Severability. In the event One or more of the provisions of this
------------
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
31
10.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts1 each of which shall be deemed an original and enforceable against
the parties actually executing such counterpart, and all of which together shall
constitute one instrument.
10.8 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties relative to the specific subject matter hereof. Any previous
agreement among the parties relative to the specific subject matter hereof is
superseded by this Agreement.
10.9 Captions. The Article and Section captions used herein are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
[Signatures to follow on next page)
32
The foregoing Agreement is hereby executed as of the date first above
written.
THE TERRITORY AHEAD, INC.
By /s/ Xxxxx X. X. Xxxxxxx
------------------------------
Title President
---------------------------
STOCKHOLDERS:
THE INTERNATIONAL CORNERSTONE GROUP, INC.
By /s/ Xxxxxxx X. End
------------------------------
Title Managing Director
---------------------------
/s/ Xxxxx X.X. Xxxxxxx, Trustee
---------------------------------
XXXXX X.X. XXXXXXX, Trustee of
The Xxxxx X.X. Xxxxxxx Living
Trust U/A dated 11-11-93
