SHAREHOLDERS AGREEMENT
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SHAREHOLDERS AGREEMENT dated as of January 1, 1998 (this "Agreement"), by
and among ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ (the "Shareholders").
W I T N E S S E T H:
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WHEREAS, each of the Shareholders is presently the record and beneficial
owner of that number of shares of the Common Stock, $0.01 par value, of Happy
Kids Inc. (the "Company"), as set forth on Schedule A attached hereto
(collectively, the "Restricted Stock"); and
WHEREAS, the Shareholders deem it to be in the best interests of each of
the Shareholders to restrict the transfer of all of the Restricted Stock as
herein provided.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
contained herein, the parties hereby agree as follows:
A. Right of First Refusal.
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1. Whenever and as often as any of the Shareholders shall desire to
sell any of his respective shares of Restricted Stock pursuant to a bona fide
offer for the purchase thereof, such selling Shareholder (the "Selling
Shareholder") shall give notice (the "Notice") to the other Shareholders (the
"Offerees") in writing to such effect, enclosing a copy of such bona fide offer
(it being agreed that the Selling Shareholder shall cause any such offer to be
reduced to writing) and specifying the number of shares of the Selling
Shareholder's Restricted Stock which the Selling Shareholder desires to sell
(the "Shares"), the name of the person or persons to whom the Selling
Shareholder desires to make such sale and the dollar value of the consideration
which has been offered in connection therewith. Upon receipt of the Notice, the
Offerees shall have the first right and option to purchase all but not less than
all of the Shares, pro rata according to their then respective holdings of
Common Stock as compared to all Offerees (assuming the issuance of all shares of
Common Stock issuable pursuant to then outstanding warrants, options,
convertible or exchangeable securities and other rights to acquire shares of
Common Stock from the Company, whether or not such warrants, options,
convertible or exchangeable securities or other rights are at the time
exercisable, convertible or exchangeable held by all Offerees), for cash at a
purchase price equal to the dollar value of such consideration (in the event
such consideration includes noncash consideration, the dollar value of such
noncash consideration shall be determined by the Company's Board of Directors,
whose good faith determination shall be conclusive, provided that if the Selling
Shareholder or any such Offeree is a member of the Board of Directors, he or she
shall not participate in such determination, and provided further, that if the
Company's Board of Directors is unable or unwilling to make such determination
for any reason, such determination shall be made by mutual agreement of the
Shareholders, or by an independent third party mutually agreed upon by the
Shareholders), exercisable for a period of five (5) business days from the date
of receipt of the Notice. Failure of any Offeree to respond to
the Notice within the five (5) business day period shall be deemed to constitute
a notification to the Selling Shareholder of such Offeree's decision not to
exercise the right and option to purchase their pro rata share of the Shares
under this Section A(1). In such event (and in the event that an Offeree shall
notify the Selling Shareholder of such Offeree's decision not to exercise its
right and option) the Selling Shareholder shall give written notice (the
"Subsequent Notice") to the other remaining Offeree who has agreed to purchase
his pro rata share of the Shares and such Offeree shall have the right,
exercisable for a period of five (5) business days from the date of receipt of
such Subsequent Notice, to purchase the remaining Shares, for cash at a purchase
price equal to the dollar value of the consideration offered for such Shares as
set forth in the Notice. Failure of such remaining Offeree to respond to any
such Subsequent Notice within the five (5) business day period shall be deemed
to constitute a notification to the Selling Shareholder of such remaining
Offeree's decision not to exercise the right and option to purchase the
remaining Shares under this Section A(1).
2. Each Offeree may exercise the rights and options provided in
Section A(1) by giving written notice to the Selling Shareholder not later than
the close of business on the date of expiration of such right and option (or if
such date is not a business day, then on or before the close of business on the
next succeeding business day), advising of the election to exercise the same and
the date (not later than five (5) business days from the date of expiration of
the notice upon which such Offeree is acting) upon which payment of the purchase
price for the Shares shall be made. The Selling Shareholder shall cause to be
delivered to each Offeree's principal office, on the payment date specified in
such written notice, the certificate or certificates representing the Shares
being purchased by each Offeree, properly endorsed for transfer, against payment
of the purchase price therefor.
3. If the Shares are not purchased by the Offerees in accordance with
this Section A, the Selling Shareholder may, during the ninety (90) day period
commencing on the expiration of the rights and options provided for in Section
A(1), and subject to the provisions of paragraph B, below, sell all, but not
less than all, of the Shares to the transferee named in the Notice for
consideration the dollar value of which is equal to or greater than the dollar
value of the consideration specified in the Notice, free of the restrictions
contained in Section A of this Agreement.
B. Right of Participation in Sales:
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1. If at any time a Selling Shareholder desires to sell Shares to a
proposed transferee (the "Proposed Transferee") and those Shares to be
transferred have not been purchased by the other Shareholders under Section A,
above, such other Shareholders (the "Remaining Shareholders") shall have the
right to sell to the Proposed Transferee, as a condition to such sale by the
Selling Shareholder, at the same price per share (as described below) and on the
same terms and conditions as involved in such sale by the Selling Shareholder, a
pro rata portion of the amount of Shares proposed to be sold to the Proposed
Transferee. The price per share referenced hereinabove shall include all
consideration to be received in connection with such sale (in the event such
consideration includes noncash consideration, the dollar value of such noncash
consideration shall be determined by the Company's Board of Directors, whose
good faith determination shall be conclusive, provided that if the Selling
Shareholder or any such
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Remaining Shareholder is a member of the Board of Directors, he or she shall not
participate in such determination, and provided further, that if the Company's
Board of Directors is unable or unwilling to make such determination for any
reason, such determination shall be made by mutual agreement of the
Shareholders, or by an independent third party mutually agreed upon by the
Shareholders). The "pro rata portion" of Shares to be sold by the Selling
Shareholder and each of the Remaining Shareholders who elects to sell his or her
Shares pursuant to this paragraph B (the Selling Shareholder and each such
Remaining Shareholder referred to collectively as the "Participating
Shareholders") shall be that proportion of Shares as shall be equal to each such
Participating Shareholders' then respective holdings of Common Stock as compared
to all of the Participating Shareholders (assuming the issuance of all shares of
Common Stock issuable pursuant to then outstanding warrants, options,
convertible or exchangeable securities and other rights to acquire shares of
Common Stock from the Company, whether or not such warrants, options,
convertible or exchangeable securities or other rights are at the time
exercisable, convertible or exchangeable held by all Participating
Shareholders).
2. Each Selling Shareholder who wishes to make a sale to a Proposed
Transferee which is subject to this Section B shall, after complying with the
provisions of Section A, give to each Remaining Shareholder notice of such
proposed sale, which shall include a statement that the Shares were not
purchased pursuant to Section A. Such notice shall be given at least five (5)
business days prior to the date of the proposed sale to the Proposed Transferee.
Each Remaining Shareholder wishing to so participate in any sale under this
Section B shall notify the Selling Shareholder in writing of such intention with
five (5) business days after such Remaining Shareholder's receipt of the notice
described in the preceding sentence.
3. The Selling Shareholder and each other Participating Shareholder
shall sell to the Proposed Transferee all or, at the option of the Proposed
Transferee, any part of the Shares proposed to be sold by them at not less than
the price and upon other terms and conditions, if any, not more favorable to the
Proposed Transferee than those in the notice provided by the Selling Shareholder
under subparagraph (2) above; provided, however, that any purchase of less than
all of such Shares by the Proposed Transferee shall be made from the Selling
Shareholder and each other Participating Shareholder pro rata based upon the
relative number of the Shares that the Selling Shareholder and each other
Participating Shareholder had otherwise committed to sell pursuant to Section
B(1) and provided further that such reduced number of Shares has first been
offered to the Offerees pursuant to Section A above.
C. Miscellaneous.
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1. Shares Subject to Agreement. Each of the Shareholders agrees that
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any and all shares of the Company's Common Stock held by such Shareholder shall
be subject to this Agreement, whether presently held or hereafter acquired,
including, but not limited to, all shares of Common Stock acquired upon the
exercise of stock options, as well as all shares of Common Stock acquired by any
of the Shareholders pursuant to the terms of that certain Securities Purchase
Agreement dated as of January 1, 1998 entered into by and among ▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇ and the Company.
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2. Certain Transfers Null and Void. Any attempted transfer of
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Restricted Stock by a Shareholder other than in accordance with this Agreement
(other than an involuntary transfer by operation of law) shall be null and void
and the Company shall refuse to recognize any such transfer and shall not
reflect on its records any change in record ownership of Restricted Stock of the
Company pursuant to any such transfer.
3. Expiration of Agreement. This Agreement shall remain in effect
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with respect to each Shareholder until mutually terminated in writing by all of
the Shareholders.
4. Notices. All notices required or permitted under this Agreement
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shall be in writing and delivered, by any method providing for proof of
delivery, to the address of the Shareholders set forth on the signature page
hereto. Any notice shall be deemed to have been given on the date of receipt.
5. Survival of Representations. Each representation, warranty,
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covenant and agreement of the Shareholders hereto herein contained shall survive
the date hereof, notwithstanding any investigation at any time made by or on
behalf of any Shareholder hereto.
6. Entire Agreement. This Agreement and the documents referred to
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herein contain the entire agreement between the Shareholders hereto with respect
to the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the Shareholder against which it is
sought to be enforced.
7. Assignment. This Agreement shall not be assignable by any of the
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parties hereto.
8. Invalidity, Etc. If any provision of this Agreement, or the
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application of any such provision to any person or circumstance, shall be held
invalid by a court of competent jurisdiction, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those as to which it is held invalid, shall not be affected thereby.
9. Headings. The headings of this Agreement are for convenience of
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reference only and are not part of the substance of this Agreement.
10. Binding Effect. This Agreement shall be binding upon and inure to
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the benefit of the Shareholders and their respective heirs and assigns, if any.
11. Governing Law. This Agreement shall be governed by and construed
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in accordance with the laws of the State of New York applicable in the case of
agreements made and to be performed entirely within such State.
12. Counterparts. This Agreement may be executed in counterparts,
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each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇
Address for notice: Address for notice:
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇
Address for notice:
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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Acknowledged and Agreed for purposes
of Section C(2) of this Agreement:
Happy Kids Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇, President
SCHEDULE A
Shareholder Name Shares Held
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▇▇▇▇ ▇. ▇▇▇▇▇ 1,162,500
▇▇▇▇ ▇. ▇▇▇▇▇ 1,162,500
▇▇▇▇▇ ▇▇▇▇ 1,162,500