SHAREHOLDERS AGREEMENT
----------------------
This SHAREHOLDERS AGREEMENT is made as of February ___, 1997 by and among
Pen-Tab Holdings, Inc., a Virginia corporation (the "Company"), Citicorp Venture
-------
Capital, Ltd., a New York corporation ("CVC"), Xxxx Xxxxx ("Xxxxx"), Xxxxxxx
--- -----
Xxxxxxxxx ("Xxxxxxxxx") and each other executive of the Company or its
---------
Subsidiaries who acquires Class A Common Stock from the Company after the date
hereof and executes a joinder hereto (collectively with Xxxxx and Xxxxxxxxx, the
"Executives" and individually, an "Executive"). CVC and the Executives are
---------- ---------
collectively referred to as the "Shareholders" and individually as a
------------
"Shareholder."
-----------
CVC intends to purchase shares of Class A Common Stock, Class B Common
Stock and the Company's 12% Series 2 Senior Redeemable Preferred Stock and each
of Xxxxx and Xxxxxxxxx intends to either retain or acquire, as the case may be,
shares of Class A Common Stock, the Company's 10% Series 1 Senior Redeemable
Preferred Stock (the "Series 1 Senior Preferred Stock") and the Company's 12%
-------------------------------
Series 3 Junior Redeemable Preferred Stock pursuant to a Recapitalization
Agreement among CVC, the Executives and the Company dated as of January 9, 1997
(the "Recapitalization Agreement").
--------------------------
The Company and the Shareholders desire to enter into this Agreement for
the purposes, among others, of (i) establishing the composition of the Company's
Board, (ii) assuring continuity in the management and ownership of the Company
and (iii) establishing the relative rights and obligations among the
Shareholders. The execution and delivery of this Agreement is a condition to
the purchase by CVC of the Company's capital stock pursuant to the
Recapitalization Agreement. Capitalized terms used herein are defined in
Section 1 hereof.
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. DEFINITIONS. As used herein, the following terms shall have the
-----------
following meanings:
"Affiliate" shall mean, as to any Person, any other Person which
---------
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Approved Sale" means the sale of the Company, in a single transaction
-------------
or a series of related transactions, to an Unaffiliated Third Party (a) pursuant
to which such Unaffiliated Third Party proposes to acquire all or substantially
all of the outstanding Common Stock (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding Common Stock or
otherwise) or all or substantially all of the consolidated assets of the Company
and (b) which has been approved by the Board and holders of a majority of the
outstanding CVC Shareholder Shares, voting together as a single class.
"Board" means the Company's board of directors.
-----
"Class A Common" means the Company's Class A Common Stock, par value
--------------
$.01 per share, as adjusted for any stock split, stock dividend, share
combination, share exchange, recapitalization, merger, conversion, consolidation
or other reorganization.
"Class B Common" means the Company's Class B Common Stock, par value
--------------
$.01 per share, as adjusted for any stock split, stock dividend, share
combination, share exchange, recapitalization, merger, conversion, consolidation
or other reorganization.
"Closing" has the meaning set forth in the Recapitalization Agreement.
-------
"Common Stock" means, collectively, the Class A Common, the Class B
------------
Common and any other class of common stock of the Company.
"CVC Shareholder Shares" means all Shareholder Shares issued or
----------------------
issuable to CVC and its Permitted Transferees.
"Family Group" means, with respect to an individual Shareholder, such
------------
Shareholder's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such Shareholder and/or such Shareholder's spouse,
their respective ancestors and/or descendants (whether natural or adopted).
"Other Shareholders" means, with respect to a Shareholder, all
------------------
Shareholders other than such Shareholder.
"Ownership Ratio" means, as to a Shareholder at the time of
---------------
determination, the percentage obtained by dividing the amount of shares of
Common Stock held by such Shareholder on a fully diluted basis at such time by
the aggregate amount of shares of Common Stock outstanding on a fully diluted
basis at such time.
"Permitted Transferees" has the meaning set forth in Section 4(c).
---------------------
-2-
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means, collectively, the Series 1 Senior Preferred
---------------
Stock, the Company's 12% Series 2 Senior Redeemable Preferred Stock, the
Company's 12% Series 3
Junior Redeemable Preferred Stock and any other series of Preferred Stock of the
Company.
"Public Sale" means any sale of Shareholder Shares to the public
-----------
pursuant to an offering registered under the Securities Act or to the public
effected through a broker, dealer or market maker pursuant to the provisions of
Rule 144 under the Securities Act.
"Qualified Public Offering" means the sale, in underwritten public
-------------------------
offerings, registered under the Securities Act, whether in one offering or as a
result of several offerings, of shares of the Company's Common Stock having an
aggregate value of at least $30 million.
"Recapitalization Agreement" has the meaning set forth in the
--------------------------
preamble.
"Regulatory Problem" means any set of facts or circumstances wherein
------------------
it has been asserted by any governmental regulatory agency (or CVC or any of its
Affiliates believes that there is a substantial risk of such assertion) that CVC
is not entitled to hold, or exercise any significant right, with respect to, the
CVC Shareholder Shares.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Senior Indebtedness" means (i) all liabilities and all other
-------------------
obligations of the Company or any of its Subsidiaries pursuant to the Senior
Notes, and (ii) all other indebtedness for borrowed money and guarantees of such
indebtedness of the Company or any of its Subsidiaries and all permissible
renewals, extensions or refundings thereof.
"Senior Notes" means the ___% Senior Subordinated Notes issued by Pen-
------------
Tab Industries, Inc. in the aggregate principal amount of up to $65.0 million.
"Shareholder Shares" means (i) any Common Stock acquired or held by
------------------
the Shareholders, and (ii) any equity securities issued or issuable directly or
indirectly with respect to the securities referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, conversion, consolidation or other reorganization. As
to any particular shares constituting Shareholder Shares, such shares will cease
to be Shareholder Shares when they have been sold in a Public Sale, an Approved
Sale, or upon the consummation of a Qualified Public Offering. For purposes of
this Agreement, a Person will be deemed to be a holder of Shareholder Shares
whenever such Person has the right to acquire directly or indirectly such
Shareholder Shares (upon conversion or
-3-
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed
to have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or a general partner of such partnership,
association or other business entity.
"Transaction Documents" means the following agreements, all of which
---------------------
are dated as of the date hereof: this Agreement, the Registration Rights
Agreement by and among the parties hereto, the Employment Agreements and Option
Agreements, both between the Company and each of Xxxxx and Xxxxxxxxx and the
Recapitalization Agreement.
"Unaffiliated Third Party" means any Person who, immediately prior to
------------------------
the contemplated transaction, (i) does not own in excess of 5% of the Common
Stock on a fully diluted basis (a "5% Owner"), (ii) is not controlling,
--------
controlled by or under common control with any such 5% Owner and (iii) 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.
2. BOARD OF DIRECTORS.
------------------
(a) From and after the Closing (as defined in the Recapitalization
Agreement) and until the provisions of this Section 2 cease to be effective,
each holder of Shareholder Shares shall vote all Shareholder Shares which are
voting shares and any other voting securities of the Company over which such
holder 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
shareholder, 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 or desirable
actions within its control (including, without limitation, calling special board
and shareholder meetings), so that:
-4-
(i) the authorized number of directors on the Board shall be
established at five (5), and shall not be increased without the prior
written consent of Xxxxx;
(ii) the following individuals shall be elected to the Board:
(A) two (2) representatives designated by CVC determined by
a vote of the holders of a majority of the CVC Shareholder Shares (the
"CVC Directors");
-------------
(B) for so long as Xxxxx, in combination with his Permitted
Transferees (the "Xxxxx Shareholders"), holds at least 50% of the
------------------
Class A Common Stock held by Xxxxx upon the Closing, two (2)
representatives designated by the Xxxxx Shareholders, who shall
initially be Xxxxx and Xxxxxxx Xxxx Xxxxx, determined by a vote of the
holders of a majority of the Shareholder Shares held by all Xxxxx
Shareholders; and
(C) one (1) representative designated by the holders of
Class A Common Stock, determined by a vote of the holders of a
majority of the Class A Common Stock, who shall initially be Xxxxx
Xxxxxxx; provided, that if at any time Xxxxx, in combination with his
Permitted Transferees, shall cease to own the capital stock described
in Section 2(a)(ii)(B) above, then the representatives designated by
Section 2(a)(ii)(B) shall automatically cease to be members of the
Board and the holders of the Class A Common shall be entitled to
designate an additional two (2) representatives determined by a vote
of the holders of a majority of the Class A Common Stock.
(ii) the composition of the board of directors of each of the
Company's Subsidiaries (a "Sub Board") shall be the same as that of the
---------
Board;
(iv) any committees of the Board or a Sub Board shall be created
only upon the approval of three members of the Board and each such
committee (if any) shall include a CVC Director (or a designee of a CVC
Director);
(v) the removal from the Board or a Sub Board (with or without
cause) of any representative designated hereunder by CVC, by the Xxxxx
Shareholders or by the holders of the Class A Common Stock, as the case may
be, shall be at the written request of CVC, the Xxxxx Shareholders or by
the holders of the Class A Common Stock, respectively, but only upon such
written request and under no other circumstances (in each case, determined
on the basis of a vote of the holders of a majority of the Shareholder
Shares held by such Persons); and
-5-
(vi) in the event that any representative designated hereunder
by CVC, by the Xxxxx Shareholders or by the holders of Class A Common Stock
ceases to serve as a member of the Board or a Sub Board during his term of
office, the resulting vacancy on the Board or the Sub Board shall be filled
by a representative designated by CVC, by the Xxxxx Shareholders, or by the
holders of Class A Common Stock, respectively, as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the
Board, any Sub Board and any committee thereof. So long as any director serves
on the Board, the Company's certificate of incorporation and bylaws shall
provide for indemnification and exculpation of directors to the fullest extent
permitted under applicable law.
(c) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Section 2, the individual previously
holding such directorship shall be elected to such position, or if such
individual fails or declines to serve, the election of an individual to such
directorship shall be accomplished in accordance with the Company's bylaws and
applicable law; provided that the Shareholders shall vote to remove such
--------
individual if the party that failed to designate such directorship so directs.
(d) The provisions of this Section 2 shall terminate automatically
and be of no further force and effect upon the consummation of a Qualified
Public Offering.
3. REPRESENTATIONS AND WARRANTIES. Each Shareholder represents and
------------------------------
warrants that (a) effective as of the Closing such Shareholder is the record
owner of the number of Shareholder Shares set forth opposite its name on
Schedule A attached hereto, (b) this Agreement has been duly authorized,
----------
executed and delivered by such Shareholder and constitutes the valid and binding
obligation of such Shareholder, enforceable in accordance with its terms, except
as such enforceability may be limited by (x) applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity), and (c) such Shareholder has not granted and is
not a party to any proxy, voting trust or other agreement which is inconsistent
with, conflicts with or violates any provision of this Agreement. No holder of
Shareholder Shares shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement.
4. RESTRICTIONS ON TRANSFER OF SHAREHOLDER SHARES.
----------------------------------------------
(a) Tag Along Rights. Subject to Sections 4(c) and 4(d), at least 15
----------------
days prior to any sale, transfer, assignment, pledge or other disposal (a
"Transfer") of Shareholder Shares by CVC or any of its Permitted Transferees,
--------
CVC or such Permitted Transferees, as the case
-6-
may be, shall deliver a written notice (the "Sale Notice") to the Company and
-----------
the Other Shareholders, specifying in reasonable detail the identity of the
prospective transferee(s) and the terms and conditions of the Transfer and
enclosing therewith a true and complete copy of any written offer, letter of
intent or other written document setting forth the proposed terms and conditions
of the Transfer. The Other Shareholders may elect to participate in the
contemplated Transfer by delivering written notice to CVC within 10 days after
delivery of the Sale Notice. If any Other Shareholders have elected to
participate in such Transfer, each of CVC and such Other Shareholders shall be
entitled to sell in the contemplated Transfer, at the same price and on the same
terms, a number of Shareholder Shares of any class equal to the product of (i)
the quotient determined by dividing the percentage of Shareholder Shares owned
by such Shareholder by the aggregate percentage of Shareholder Shares owned by
CVC and the Other Shareholders participating in such Transfer and (ii) the
aggregate number of Shareholder Shares to be sold in the contemplated Transfer.
(b) First Offer Rights. Subject to Sections 4(c) and 4(d), at least
------------------
60 days prior to any Transfer of Shareholder Shares by any of the Executives or
their respective Permitted Transferees, such Person making such Transfer (the
"Offering Shareholder") shall deliver a written notice (the "Transfer Notice")
-------------------- ---------------
to the Company, CVC and the other nonselling shareholders of the Company
specifying in reasonable detail the number of shares proposed to be transferred,
the proposed purchase price (which shall be payable solely in cash) and the
other terms and conditions of the Transfer and enclosing therewith a true and
complete copy of any written offer, letter of intent or other written document
setting forth the proposed terms and conditions of the Transfer. The Company
may elect to purchase all (but not less than all) of the Shareholder Shares to
be transferred, upon the same terms and conditions as those set forth in the
Transfer Notice, by delivering a written notice of such election to the Offering
Shareholder (with a copy to CVC) within 30 days after the Transfer Notice has
been delivered to the Company. If the Company has not elected to purchase all
of the Shareholder Shares to be transferred, CVC (or its designee) and the other
nonselling Shareholders may elect to purchase all (but not less than all) of the
Shareholder Shares to be transferred, upon the same terms and conditions as
those set forth in the Transfer Notice, by giving written notice of such
election to the Offering Shareholder within 45 days after the Transfer Notice
has been given to CVC (the "CVC Option Period"). Each of CVC and the other
-----------------
nonselling shareholders shall have the right to purchase that portion of the
Shareholders Shares to be transferred which is equal to the ratio that the
shares of Common Stock owned by a purchasing party bears to the aggregate shares
of Common Stock owned by all purchasing Shareholders or in any other proportion
that the parties shall agree upon, it being understood that Xxxxx and Xxxxxxxxx
shall have the right to purchase any shares available for purchase by any of
their respective Permitted Transferees in the event any such Permitted
Transferee elects not to exercise such option to purchase. If neither the
Company, the other nonselling Shareholders nor CVC (or its designee) elects to
purchase all of the Shareholder Shares specified in the Transfer Notice, then
the Offering Shareholder may transfer the Shareholder Shares specified in the
Transfer Notice at a price and on terms no more favorable to the transferee(s)
thereof than specified in the Transfer Notice during the 60-day
-7-
period immediately following the expiration of the CVC Option Period. Any
Shareholder Shares not transferred within such 60-day period will be subject to
the provisions of this Section 4(b) upon subsequent transfer.
(c) Permitted Transfers. The restrictions contained in this Section
-------------------
4 shall not apply with respect to any Transfer of Shareholder Shares by any
Shareholder (i) in the case of an individual Shareholder, pursuant to applicable
laws of descent and distribution or to any member of such Shareholder's Family
Group, and (ii in the case of CVC (A) to its Affiliates, employees, officers,
directors and consultants and their respective Affiliates, (B) to any limited or
general partnership of which CVC's officers, employers or consultants are
limited or general partners, including, without limitation, CCT III Partners,
L.P., a Delaware limited partnership, and any successors thereto, (C) to any
employee, prospective employee, director or prospective director of the Company
or any Affiliate of the Company, (D) to any former or prospective employee,
director or prospective director of CVC or any Affiliate of CVC, or (E) to any
Person in order to resolve a Regulatory Problem; provided, that the restrictions
contained in this Section 4 shall continue to be applicable to such Shareholder
Shares after any such Transfer; and provided further, that the transferees of
such Shareholder Shares shall have agreed in writing to be bound by the
provisions of this Agreement which affect the Shareholder Shares so transferred
by executing a joinder in the form substantially attached hereto as Exhibit A.
---------
All transferees permitted under this Section 4(c) are collectively referred to
herein as "Permitted Transferees."
---------------------
(d) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 4 shall continue with respect to each Shareholder Share until the
earlier of (i) the Transfer of such Shareholder Share in a Public Sale or an
Approved Sale, or (ii) the consummation of a Qualified Public Offering.
5. SALE OF THE COMPANY.
-------------------
(a) In the event of an Approved Sale, each Shareholder will (i)
consent to, vote for, and raise no objections against the Approved Sale or the
process pursuant to which the Approved Sale was arranged, (ii) waive any
dissenter's rights and other similar rights, and (iii) if the Approved Sale is
structured as a sale of stock, each Shareholder will agree to sell its
Shareholder Shares and its Preferred Stock on the terms and conditions of the
Approved Sale; provided, however, that no terms of the Approved Sale shall alter
the rights and priorities of the Preferred Stock. Each Shareholder will take
all necessary and desirable actions as directed by the Board and the Approving
Shareholders in connection with the consummation of any Approved Sale, including
without limitation executing the applicable purchase agreement, making
representations and warranties, and granting identical indemnification rights.
Each Shareholder required to make indemnification payments in connection with
any Approved Sale shall have a right to recover from the Other Shareholders to
the extent that the amount required to be paid by such Shareholder was
disproportionate to the proportion of the total consideration
-8-
received by all Shareholders, compared to the consideration actually received by
such Shareholder.
(b) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) under the Securities Act may be available with respect to such
negotiation or transaction (including a merger, consolidation or other
reorganization), the Other Shareholders will, at the request of the Company,
appoint a purchaser representative (as such term is defined in Rule 501)
reasonably acceptable to the Company. If any Other Shareholder appoints a
purchaser representative designated by the Company, the Company will pay the
fees of such purchaser representative, but if any Other Shareholder declines to
appoint the purchaser representative designated by the Company such holder will
appoint another purchaser representative (reasonably acceptable to the Company),
and such holder will be responsible for the fees of the purchaser representative
so appointed.
(c) All Shareholders will bear their pro rata share (based upon the
number of shares sold) of the reasonable costs of any sale of Shareholder Shares
pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all selling Shareholders and are not otherwise paid by the Company or
the acquiring party. Costs incurred by any Shareholder on its own behalf will
not be considered costs of the transaction hereunder.
(d) This Section 5 shall automatically terminate upon a Qualified
Public Offering.
6. SPECIAL REPURCHASE PROVISIONS. Any capitalized terms used in this
-----------------------------
Section 6 and not otherwise defined herein shall have the meaning set forth in
that certain Employment Agreement of even date herewith between the Company and
Xxxxx. Anything in this Shareholders Agreement to the contrary notwithstanding,
and subject to the provisions of Section 6(g) below, in the event the employment
of Xxxxx by the Company or Pen-Tab shall terminate for any reason whatsoever
other than the death or Disability of Xxxxx, the following procedure set forth
below in this Section 6 shall be followed:
(a) Within ten (10) Business Days after the employment of Xxxxx shall
terminate, CVC and Xxxxx shall mutually agree upon the identity of an accounting
firm or investment banking firm which shall be retained to determine the per
share fair market value of all shares of Preferred Stock and Common Stock owned
by Xxxxx and Xxxxxxxxx and their respective Permitted Transferees as of the date
Xxxxx' employment shall terminate. In the event Xxxxx and CVC, within the ten
(10) Business Day period referred to above, shall be unable to agree upon the
identity of a firm to determine the aforesaid valuation, then, within ten (10)
Business Days after the expiration of the initial ten (10) Business Days period,
each of Xxxxx and CVC shall appoint and designate an accounting firm or
investment banking firm as its representative, and shall give written notice of
such appointment and designation to the other
-9-
party. Within ten (10) Business Days after the expiration of the second ten (10)
Business Days period provided for above, the two firms so appointed and
designated mutually shall appoint and designate an accounting firm or investment
banking firm which is unaffiliated with either appointing firm or any of the
parties hereto, and such firm so appointed and designated (the "Valuation Firm")
shall determine the Valuation provided for herein. The fees, costs and expenses
of the Valuation Firm and the firms engaged to appoint the Valuation Firm shall
be borne equally by Xxxxx and CVC. Xxxxx and CVC agree that any such retention
solely shall be on the basis that the Valuation Firm is being retained jointly
by Xxxxx and CVC, and the Valuation Firm shall be required to acknowledge in
writing that it is acting jointly on behalf of Xxxxx and CVC.
(b) The Company shall, and shall cause each of its Subsidiaries to,
make available to the Valuation Firm for inspection, review and copying, without
restriction, all assets, properties, books, records, data and information
(whether in written, computer or other form) regarding the business, assets,
financial condition and prospects of the Company and each of its Subsidiaries.
In addition, the Company shall, and shall cause each of its Subsidiaries to,
instruct their respective accountants to make their records and workpapers
regarding the Company and its Subsidiaries available to the Valuation Firm in
connection with the valuation provided for herein. Xxxxx agrees to cooperate
with the Valuation Firm to facilitate the Valuation, such facilitation to
include discussions with the Valuation Firm, access to personnel and records and
other cooperation as reasonably requested by the Valuation Firm.
(c) The Valuation Firm shall be required to prepare its valuation
strictly in accord with the following facts and assumptions:
(i) One hundred percent (100%) of the issued and
outstanding shares of Company Preferred Stock and Company Common Stock are
being sold to a financially responsible purchaser on an all cash purchase
price basis in an arms length negotiated transaction where neither
purchaser nor seller is under duress or subject to any other pressure to
consummate the transaction, and no discount for a minority interest shall
be applied;
(ii) The Company and its Subsidiaries are valued as a
going concern with their respective assets and business continuing in place
subsequent to the closing of any purchase transaction;
(iii) Any change of control clauses or other provisions in
any documents governing Indebtedness (as defined in the Recapitalization
Agreement) which would cause such Indebtedness to become due or permit such
Indebtedness to become accelerated upon a purchase of shares by CVC or
Xxxxx pursuant to this Section 6 will be recognized as creating an
obligation of a purchaser of shares of Preferred Stock and Common Stock to
refinance such Indebtedness;
-10-
(iv) The Common Stock has not been registered under the
Securities Act; and
(v) Preferred Stock shall be valued at its stated
liquidation value plus all accrued but unpaid dividends thereon.
(d) The Valuation Firm shall be required to deliver a detailed
written valuation report (the "Valuation Report") to Xxxxx and CVC within ninety
(90) days after the date upon which the Valuation Firm is retained. The
valuation set forth in the Valuation Report shall set forth a detailed
determination of the value of the Company as well as the value of each of the
Shares of Preferred Stock and Common Stock owned by each of CVC, Xxxxx and
Xxxxxxxxx, and their respective Permitted Transferees, shall contain a
certification by the Valuation Firm that all of the assumptions set forth in
Section 6(c) above were utilized, and shall be final and binding upon Xxxxx and
Xxxxxxxxx and CVC and their respective Permitted Transferees.
(e) Within ten (10) Business Days after the receipt of the Valuation
Report, CVC shall deliver written notice to Xxxxx and Xxxxxxxxx of whether CVC
(or its designee) desires to purchase for cash all of the shares of Preferred
Stock and Common Stock owned by Xxxxx and Xxxxxxxxx and their respective
Permitted Transferees at a purchase price equal to the per share value thereof
set forth in the Valuation Report. If CVC fails to deliver the aforesaid written
notice within said ten (10) Business Days period, or if the notice so delivered
indicates that CVC shall not purchase the aforesaid shares, (i) CVC shall be
deemed to have waived and relinquished any right to purchase the shares owned by
Xxxxx and Xxxxxxxxx and their respective Permitted Transferees under this
Section 6; and (ii for a period of ten (10) Business Days after the expiration
of the initial ten (10) Business Days period referred to in this Section 6(e),
Xxxxx shall have the right (exercisable by delivering written notice of exercise
to CVC within said ten (10) Business Day period) to purchase for cash all of the
shares of Preferred Stock and Common Stock owned by CVC and its Permitted
Transferees on the same per share valuation basis for such shares as was set
forth in the Valuation Report. The assignment by CVC to its designee of a
purchase obligation hereunder shall not in any way relieve CVC of the obligation
to pay the purchase price in the event CVC's designee shall default in such
payment. If Xxxxx fails to deliver written notice to CVC or if the notice so
delivered indicates that Xxxxx shall not purchase the shares, Xxxxx will be
deemed to have waived and relinquished his right to purchase the shares from CVC
under this Section 6.
(f) The closing of any purchase provided for in Section 6(e) above
shall take place at the offices of CVC in New York City within forty-five (45)
days after any option to purchase under Section 6(e) above is duly exercised.
The purchase price shall be payable by the wire transfer of immediately
available funds in exchange for the purchased shares, duly endorsed for transfer
or with executed stock powers attached, free and clear of all liens, claims,
security interests and encumbrances whatsoever. In connection with any sale of
shares under this Section 6, the selling party shall make representations and
warranties to the purchaser
-11-
substantially in the form of the representations and warranties set forth in
Sections 6A, 6B and 6C of the Recapitalization Agreement.
(g) Anything in this Section 6 to the contrary notwithstanding, the
provisions of this Section 6 shall be null and void and shall terminate and be
of no further force or effect if, prior to the termination of Xxxxx' employment,
the Company or Pen-Tab Industries, Inc. ("Pen-Tab"), a wholly owned subsidiary
of the Company, shall have sold shares of its Common Stock pursuant to an
initial public offering or is contemplating such a sale. The Company and Pen-
Tab shall be deemed to have contemplated such a sale if shares of the Company's
Common Stock or Pen-Tab's Common Stock are sold pursuant to an initial public
offering within six (6) months after Xxxxx' employment shall terminate. If such
contemplated sale occurs after shares have been purchased hereunder then, within
ten (10) days after the initial public offering shall become effective, the
purchasing party shall pay to the selling party or parties, by wire transfer of
immediately available funds, an amount which is equal to the excess of the
initial public offering price for a share of Common Stock over the price per
share determined pursuant to the Valuation Report, if any, multiplied by the
number of shares of Common Stock purchased pursuant to this Section 6.
7. LEGEND. In addition to any legend required by any other Transaction
------
Document, each certificate evidencing Shareholder Shares and Preferred Stock and
each certificate issued in exchange for or upon the transfer of any Shareholder
Shares (if such shares remain Shareholder Shares as defined herein after such
transfer) and Preferred Stock shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
WERE ORIGINALLY ISSUED ON FEBRUARY 4, 1997, AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF
FEBRUARY 4, 1997, BY AND AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE
COMPANY'S SHAREHOLDERS. A COPY OF SUCH
SHAREHOLDERS 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 Shareholder
Shares outstanding prior to the date hereof. The legend set forth above shall
be removed from the certificates evidencing any shares which cease to be
Shareholder Shares.
-12-
8. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
-----------------------------------
Transfer of any Shareholder Shares in violation of any provision of this
Agreement shall be null and void, and the Company shall not record such Transfer
on its books or treat any purported transferee of such Shareholder Shares as the
owner of such shares for any purpose.
9. TRANSFER OF SHAREHOLDER SHARES.
------------------------------
(a) Shareholder Shares and shares of Preferred Stock are transferable
only pursuant to (i) public offerings registered under the Securities Act, (ii)
subject to the provisions of Section 4 above, Rule 144 or Rule 144A (or any
similar rule or rules then in effect) of the Securities and Exchange Commission
if such rule is available, and (iii) subject to Section 4 or 5 and Section 9(b)
below, any other legally available means of Transfer.
(b) In connection with the Transfer of any Shareholder Shares or
Preferred Stock other than a Transfer described in clause (i) or (ii) of Section
9(a) above, the holder thereof shall deliver written notice to the Company
describing in reasonable detail the Transfer or proposed Transfer, together with
an opinion of counsel reasonably acceptable to the Company to the effect that
such Transfer of Shareholder Shares or Preferred Stock may be effected without
registration of such Shareholder Shares or Preferred Stock under the Securities
Act. In addition, if the holder of the Shareholder Shares or Preferred Stock
delivers to the Company an opinion of counsel that no subsequent Transfer of
such Shareholder Shares or Preferred Stock shall require registration under the
Securities Act, the Company shall promptly upon such contemplated Transfer
deliver new certificates for such Shareholder Shares or Preferred Stock which do
not bear the legend set forth in Section 8 above. If the Company is not
required to deliver new certificates for such Shareholder Shares or Preferred
Stock not bearing such legend, the holder thereof shall not consummate a
Transfer of the same until the prospective transferee has confirmed to the
Company in writing its agreement to be bound by the conditions contained in this
Section 9 and Section 7 above.
(c) Upon the request of a holder of Shareholder Shares or Preferred
Stock, the Company shall promptly supply to such Person or its prospective
transferees all information regarding the Company required to be delivered in
connection with a Transfer pursuant to Rule 144A (or any similar rule or rules
then in effect) of the Securities and Exchange Commission.
(d) Upon the request of any holder of Shareholder Shares or Preferred
Stock, the Company shall remove the legend set forth in Section 7 above from the
certificates for such holder's Shareholder Shares or Preferred Stock; provided,
that such Shareholder Shares or Preferred Stock are eligible for sale pursuant
to Rule 144(k) (or any similar rule or rules then in effect) of the Securities
and Exchange Commission.
10. LIMITED PREEMPTIVE RIGHTS. If the Company issues any shares of Common
-------------------------
Stock or any securities containing options or rights to acquire any shares of
Common Stock or any
-13-
securities convertible or exchangeable for Common Stock in each case, after the
date hereof to CVC, any Permitted Transferee of CVC or any Affiliate of CVC, the
Company will offer to sell to each Other Shareholder a number of such securities
("Offered Shares") so that the Ownership Ratio immediately after the issuance
--------------
of such securities for each Shareholder would be equal to the Ownership Ratio
for such Shareholder immediately prior to such issuance of securities. The
Company shall give each Shareholder at least 30 days prior written notice of any
proposed issuance, which notice shall disclose in reasonable detail the proposed
terms and conditions of such issuance (the "Issuance Notice"). Each Shareholder
----------------
will be entitled to purchase such securities at the same price, on the same
terms, and at the same time as the securities are issued by delivery of written
notice to the Company of such election within 15 days after delivery of the
Issuance Notice (the "Election Notice"); provided, that if more than one type of
--------------- --------
security was issued, each Shareholder shall, if it exercises its rights pursuant
to this Section 10, purchase such securities in the same ratio as issued. If any
of the Shareholders have elected to purchase any Offered Shares, the sale of
such shares shall be consummated as soon as practical (but in any event within
10 days) after the delivery of the Election Notice. In the event that any
Shareholder elects to purchase Offered Shares, at such Shareholder's request
(which request shall be included in the Election Notice), the Company shall
issue to such Shareholders, in lieu of the securities constituting Offered
Shares, nonvoting securities which shall otherwise be identical in all respects
to such securities constituting Offered Shares, except that it (i) shall be
nonvoting, (ii) shall be convertible into a voting security (including the
securities constituting Offered Shares) on such terms as are requested by such
Shareholder in light of the applicable regulatory considerations then
prevailing, and (iii) may not, at Shareholder's request, be a common equity
security. In the event any Shareholder elects not to exercise its rights
pursuant to this Section 10, no other Shareholder shall have the right to
purchase the securities offered to such Shareholder. This Section 10 will
terminate automatically, and be of no further force and effect, upon the
consummation of a Qualified Public Offering.
11. DIVIDEND PAYMENTS. The Company agrees that it shall make dividend
-----------------
payments in cash on the Series 1 Senior Preferred Stock on each Series 1
Dividend Reference Date (as defined in the Company's articles of incorporation
as in effect on the date hereof) if and to the extent permitted under the
documents governing Senior Indebtedness.
12. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Shareholders unless such modification,
amendment or waiver is approved in writing by the Company or the holders of not
less than 75% of the Shareholder Shares, respectively. For the avoidance of
doubt, the addition of another party to this Agreement by execution of a joinder
to this Agreement substantially in the form of Exhibit A attached hereto is not
---------
an action which, in and of itself, requires an amendment to 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.
-14-
13. 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.
14. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
----------------
this document and the other Transaction Documents embody the complete agreement
and understanding among the parties hereto with respect to the subject matter
hereof and supersede and preempt 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, including, without limitation, the
Letter of Intent dated October 29, 1996 by and among CVC, Xxxxx, Xxxxxxxxx and
the Company.
15. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Shareholders and any subsequent
holders of Shareholder Shares and the respective successors and assigns of each
of them, so long as they hold Shareholder Shares.
16. 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.
17. REMEDIES. The parties hereto 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 Company, CVC, any Executive and any of their respective
Permitted Transferees may, in any such Person's 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.
18. NOTICES. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient (with telephonic confirmation from the recipient). Such notices,
demands and other communications will be sent to the address indicated below:
-15-
To the Company:
--------------
Pen-Tab Holdings, Inc.
000 Xxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xx. Xxxx Xxxxx
Telecopy No.: (000) 000-0000
With copies, which shall not constitute notice, to:
--------------------------------------------------
Xxxxxxx & Xxxxx
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
Citicorp Venture Capital, Ltd.
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx X. XxXxxxxxxx
Telecopy No.: (000) 000-0000
Xxxxxxxx & Xxxxx
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx X. Xxxxx, Esq.
Telecopy No.: (000) 000-0000
To CVC:
------
Citicorp Venture Capital, Ltd.
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx X. XxXxxxxxxx
Telecopy No.: (000) 000-0000
-16-
With a copy, which shall not constitute notice, to:
--------------------------------------------------
Xxxxxxxx & Xxxxx
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx X. Xxxxx, Esq.
Telecopy No.: (000) 000-0000
To either of the Executives:
---------------------------
Pen-Tab Holdings, Inc.
000 Xxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxxx and Xxxxxxx Xxxxxxxxx
Telecopy No.: (000) 000-0000
With a copy, which shall not constitute notice, to:
--------------------------------------------------
Xxxxxxx & Xxxxx
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party.
19. GOVERNING LAW. THE CORPORATE LAW OF VIRGINIA SHALL GOVERN ALL ISSUES
-------------
CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS. ALL OTHER
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
20. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
--------------------
inserted for convenience only and do not constitute a part of this Agreement.
-17-
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the date first above written.
PEN-TAB HOLDINGS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
CITICORP VENTURE CAPITAL, LTD.
By:_______________________________
Name:_____________________________
Title:____________________________
__________________________________
XXXX XXXXX
__________________________________
XXXXXXX XXXXXXXXX
-18-
EXHIBIT A
---------
FORM OF JOINDER TO
SHAREHOLDERS AGREEMENT
----------------------
THIS JOINDER to the Shareholders Agreement, dated as of _______ __,
1997 by and among Pen-Tab Holdings, Inc. a Virginia corporation (the "Company"),
-------
and certain shareholders of the Company (the "Agreement"), is made and entered
---------
into as of _________ __,____ by and between the Company and _________________
("Holder"). Capitalized terms used herein but not otherwise defined shall have
------
the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain shares of Common Stock ("Holder
------
Stock"), and the Agreement and the Company requires Holder, as a holder of
-----
Common Stock, to become a party to the Agreement, and Holder agrees to do so in
accordance with the terms hereof.
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 Joinder hereby agree as
follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution
---------------------
of this Joinder, it shall become a party to the Agreement and shall be fully
bound by, and subject to, all of the covenants, terms and conditions of the
Agreement as though an original party thereto and shall be deemed a Shareholder
[AND AN EXECUTIVE] for all purposes thereof. In addition, Holder hereby agrees
that all Common Stock held by Holder shall be deemed Shareholder Shares for all
purposes of the Agreement
A-1
2. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Joinder shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and Holder and any subsequent holders of
Holder Stock and the respective successors and assigns of each of them, so long
as they hold any shares of Holder Stock.
3. Counterparts. This Joinder 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.
4. Notices. For purposes of Section 18 of the Agreement, all
-------
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
5. GOVERNING LAW. THE CORPORATE LAW OF VIRGINIA SHALL GOVERN ALL
-------------
ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS. ALL
OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT
OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
6. DESCRIPTIVE HEADINGS. The descriptive headings of this Joinder
--------------------
are inserted for convenience only and do not constitute a part of this Joinder.
A-2
* * * * *
A-3
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as
of the date first above written.
PEN-TAB HOLDINGS, INC.
By:__________________________
Name:________________________
Title:_______________________
[HOLDER]
By:__________________________
