1
EXHIBIT (c)(7)
JILLIAN'S ENTERTAINMENT HOLDINGS, INC.
STOCKHOLDERS AGREEMENT
Dated as of May [ ], 1997
2
JILLIAN'S ENTERTAINMENT HOLDINGS, INC.
STOCKHOLDERS AGREEMENT
TABLE OF CONTENTS
Page
----
PREAMBLE..........................................................................................................1
ARTICLE I Definitions.....................................................................................2
ARTICLE II Covenants and Conditions........................................................................7
Section 2.1 Restrictions on Transfers.......................................................................7
Section 2.2 Call by the Company.............................................................................9
Section 2.3 Come Along.....................................................................................12
Section 2.4 Take Along.....................................................................................14
Section 2.5 Purchase Rights................................................................................15
Section 2.6 Restrictions on Other Agreements...............................................................17
Section 2.7 Synthetic Sales................................................................................17
Section 2.8 Corporate Governance...........................................................................17
ARTICLE III Registration Rights............................................................................18
Section 3.1 General........................................................................................18
Section 3.2 Demand Registrations...........................................................................18
Section 3.3 Piggyback Registration.........................................................................19
Section 3.4 Obligations of the Company.....................................................................20
Section 3.5 Furnish Information............................................................................24
Section 3.6 Expenses of Registration.......................................................................24
Section 3.7 Underwriting Requirements......................................................................25
Section 3.8 Indemnification................................................................................25
Section 3.9 Lock-Up Agreement..............................................................................28
Section 3.10 No Inconsistent Agreements.....................................................................29
Section 3.11 Stock Split and Reverse Stock Split............................................................29
ARTICLE IV Miscellaneous..................................................................................30
Section 4.1 Remedies.......................................................................................30
Section 4.2 Entire Agreement; Amendment; Waiver............................................................30
Section 4.3 Severability...................................................................................31
Section 4.4 Notices........................................................................................31
Section 4.5 Binding Effect; Assignment.....................................................................32
i
3
Section 4.6 Governing Law..................................................................................32
Section 4.7 Termination....................................................................................33
Section 4.8 Recapitalization, Exchanges, Etc...............................................................33
Section 4.9 JWC Group Stockholder Representative...........................................................33
Section 4.10 Action Necessary to Effectuate the
Agreement......................................................................................34
Section 4.11 Purchase for Investment; Legend on
Certificate....................................................................................34
Section 4.12 Effectiveness of Transfers.....................................................................35
Section 4.13 Additional Stockholders........................................................................35
Section 4.14 No Waiver......................................................................................36
Section 4.15 Counterparts...................................................................................36
Section 4.16 Headings.......................................................................................36
Section 4.17 Number; Gender.................................................................................36
Section 4.18 Effective Time.................................................................................36
EXHIBIT A Schedule of Stockholders
EXHIBIT B Form of Note
ii
4
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "Agreement") is entered
into as of the [ ] day of May, 1997, by and among Jillian's Entertainment
Holdings, Inc., a Delaware corporation (the "Company"), those persons listed as
JWC Group Stockholders on the signature pages hereof, including ▇.▇. Childs
Equity Partners, L.P., a Delaware limited partnership ("Equity Partners")
(collectively, the "JWC Group Stockholders"), those persons listed as
Management Stockholders on the signatures pages hereof (the "Management
Stockholders") and those persons listed as Non-Management Stockholders on the
signatures pages hereof (the "Non-Management Stockholders"). The JWC Group
Stockholders, the Management Stockholders and the Non-Management Stockholders
are collectively referred to herein as the "Stockholders".
WHEREAS, upon consummation of the transactions contemplated
by that certain Purchase Agreement dated as of May [ ], 1997 (the "Purchase
Agreement"), by and among the Company, the Stockholders, those persons listed
as Other Option Holders on the signature pages thereto, those persons listed as
Continuing Option Holders on the signature pages thereto and those persons
listed as Continuing Warrant Holders on the signature pages thereto, the
Stockholders will own the number of shares of Common Stock and Preferred Stock
set forth opposite their respective names on Exhibit A hereto; and
WHEREAS, each of the Stockholders desires to enter into this
Agreement for the purpose of regulating certain aspects of the Stockholders'
relationships with regard to the Company and certain restrictions on, and
rights and obligations with respect to, the Common Stock and Preferred Stock
owned by the Stockholders.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
5
ARTICLE I
Definitions
For the purposes of this Agreement, the following terms
shall be defined as follows:
1933 Act. The "1933 Act" shall mean the Securities Act of
1933, as amended.
1934 Act. The "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
Affiliate. An "Affiliate" of a specified Person shall mean a
Person which, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the corporation
or other entity specified and, when used with respect to the Company or any
Subsidiary of the Company, shall include any holder of at least five percent
(5%) of the capital stock, or any officer or director, of the Company.
Anniversary Date. "Anniversary Date" shall mean the date
which is one year after the closing under the Purchase Agreement.
Associate. "Associate," (a) when used to indicate a
relationship with any Person shall mean, (i) any corporation or organization of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class of equity
securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar fiduciary capacity and (iii) any relative of such Person who
has the same home as such Person or is a parent, aunt or uncle, sibling,
spouse, in-law, child, niece or nephew or grandchild of such Person, or the
spouse of any of them, or (b) when used to indicate a relationship with the
Company, shall also mean a director or officer of the Company or any
Subsidiary. Neither the Company nor any of its Subsidiaries shall be deemed an
Associate of any Stockholder.
2
6
Board. The "Board" shall mean the Board of Directors of the
Company as the same shall be constituted from time to time.
Business Day. "Business Day" shall mean any day which is not
a Saturday, Sunday or legal holiday in the State of Delaware.
Cause. "Cause" shall mean (a) disregard of lawful
instructions of the Board or of a superior officer of the Company or of the
Board of Directors or a superior officer of any Subsidiary of the Company, as
the case may be, relating to the business or affairs of the Company or any
Subsidiary of the Company (the Company or Subsidiary of the Company having
given written notice thereof and the employee having failed to comply, as
promptly as is reasonably practicable, with such instructions upon receipt of
such notice), (b) dishonesty or willful misconduct injurious to the Company
or any Subsidiary of the Company whether monetarily or otherwise of a material
nature, (c) conviction of a felony or any crime involving moral turpitude, (d)
habitual drunkenness or drug abuse or (e) excessive absenteeism not related to
a medically determinable illness or injury.
Common Stock. "Common Stock" shall mean the Company's common
stock, par value $.001 per share, that the Company may be authorized to issue
from time to time, any other securities of the Company into which such Common
Stock may hereafter be changed or for which such Common Stock may be exchanged
after giving effect to the terms of such change or exchange (by way of
reorganization, recapitalization, merger, consolidation or otherwise) and
shall also include any common stock of the Company hereafter authorized and any
capital stock of the Company of any other class hereafter authorized which is
not preferred as to dividends or distribution of assets in liquidation over any
other class of capital stock of the Company and which has ordinary voting power
for the election of directors of the Company.
Company Stock. "Company Stock" shall mean the Common Stock,
the Preferred Stock or any other common or preferred stock of the Company.
Good Reason. "Good Reason" shall mean with respect to any
Management Stockholder, such Management
3
7
Stockholder's resignation from his employment with the Company or any of its
Subsidiaries following and because of (a) the Company's reducing or reassigning
a material portion of the Management Stockholder's duties under his employment
agreement, if any, without Cause or (b) a reduction of the Management
Stockholder's base salary other than in connection with an across-the-board
reduction of executive compensation imposed by the Board in response to
negative financial results or other adverse circumstances affecting the
Company.
Permitted Transfer. A "Permitted Transfer" shall mean:
(a) a Transfer of Shares by any JWC Group
Stockholder or Management Stockholder who is a natural person to such
Stockholder's spouse, children, grandchildren, parents or siblings or a trust
for the benefit of any of them;
(b) a bona fide pledge of Shares by a JWC Group
Stockholder to a bank, financial institution or other lender;
(c) a Transfer of Shares between any Stockholder
who is a natural person and such Stockholder's guardian or conservator;
(d) a Transfer of Shares from any Stockholder
which is a partnership to its partners, provided such Transfer is reasonably
acceptable to the Company;
(e) a Transfer of Shares from any Stockholder
which is a corporation or partnership to any Affiliate of such Stockholder,
provided such Transfer is reasonably acceptable to the Company;
(f) a Transfer of Shares by a JWC Group Stockholder
to another JWC Group Stockholder or to an officer, employee or consultant of
▇.▇. Childs Associates, Inc. ("JWC Associates") or to a corporation or
partnership (or other entity for collective investment, such as a fund) which
is controlled by, controlling or under common control with JWC Associates; or
(g) a Transfer of Shares by a Management
Stockholder to another Management Stockholder.
4
8
No Permitted Transfer shall be effective unless and until the transferee of the
Shares so Transferred, if such transferee is not already a party to this
Agreement, executes and delivers to the Company an executed counterpart of
this Agreement in accordance with the terms of Section 4.13 hereof. No
Permitted Transfer shall conflict with or result in any violation of a
judgment, order, decree, statute, law, ordinance, rule or regulation.
Permitted Transferee. A "Permitted Transferee" shall mean
any Person who shall have acquired and who shall hold Shares pursuant to a
Permitted Transfer.
Person. "Person" shall mean an individual, corporation,
partnership, limited liability company, trust, or unincorporated association,
or a government or any agency or political subdivision thereof.
Preferred Stock. "Preferred Stock" shall mean the Company's
preferred stock, par value $.001 per share, that the Company may be authorized
to issue from time to time, any other securities of the Company (other than
Common Stock) into which such Preferred Stock may hereafter be changed or for
which such Preferred Stock may be exchanged after giving effect to the terms of
such change or exchange (by way or reorganization, recapitalization, merger,
consolidation or otherwise) and shall also include any preferred stock of the
Company hereafter authorized.
Public Offering. A "Public Offering" shall mean the
completion of a sale of Common Stock, resulting in gross cash proceeds of not
less than $25 million, pursuant to a registration statement which has become
effective under the 1933 Act, excluding registration statements on Form ▇-▇,
▇-▇ or similar limited purpose forms and also excluding the registration of any
equity security issued to non-Affiliates of the Company as part of a bona fide
debt offering of units comprised of such equity security and a debt security of
the Company.
Registrable Securities. "Registrable Securities" shall
mean all shares of Common Stock held from time to time by any party hereto and
any other securities of the Company or any of its Subsidiaries issued in
exchange for, upon a reclassification of, or in a distri-
5
9
bution with respect to, such Common Stock. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall
have become effective under the 1933 Act and such securities shall have been
disposed of in accordance with such registration statement, (b) such securities
shall have been sold under a Rule 144 Transaction, (c) such securities shall
have ceased to be outstanding or (d) with respect to such securities held by a
Non-Management Stockholder, (i) such Non-Management Stockholder owns less
than 1% of the shares of Common Stock then outstanding (on a fully diluted
basis after giving effect to the exercise of all options, warrants and the like
and the conversion of all securities convertible into or exchangeable for
Common Stock) and (ii) such securities may be disposed of by such
Non-Management Stockholder in compliance with Rule 144 under the 1933 Act.
Rule 144 Transaction. "Rule 144 Transaction" shall mean a
Transfer of Shares (a) complying with Rule 144 under the 1933 Act as such Rule
or a successor thereto is in effect on the date of such Transfer (but only a
sale pursuant to a "brokers' transaction" as defined in clauses (i) and (ii) of
paragraph (g) of Rule 144 as in effect on the date hereof) and (b) occurring at
a time when Shares are registered pursuant to Section 12 of the 1934 Act.
Schedule. "Schedule" shall refer to the Schedule of
Stockholders attached hereto as Exhibit A, as amended from time to time in
accordance with Section 4.13.
SEC. "SEC" shall mean the Securities and Exchange
Commission.
Shares. "Shares" shall mean (a) all shares of Company Stock
and (b) securities of the Company issued in exchange for, upon reclassification
of, or as a distribution in respect of, any Company Stock; provided that
"Shares", when referring to a number of shares of Preferred Stock, shall mean
the number of shares of Common Stock into which such Preferred Stock is
convertible at the prevailing conversion price.
6
10
Subsidiary. "Subsidiary," with respect to any entity (the
"parent"), shall mean any corporation, firm, association or trust of which such
parent, at the time in respect of which such term is used, (a) owns directly or
indirectly more than fifty percent (50%) of the equity or beneficial interest,
on a consolidated basis, and (b) owns directly or controls with power to vote,
indirectly through one or more Subsidiaries, shares of capital stock or
beneficial interest having the power to cast a majority of the votes entitled
to be cast for the election of directors, trustees, managers or other officials
having powers analogous to that of directors of a corporation. Unless
otherwise specifically indicated, when used herein the term Subsidiary shall
refer to a direct or indirect Subsidiary of the Company.
Synthetic Sale. "Synthetic Sale" shall mean any hedge, sale
or purchase of any derivative security or other action (other than Transfers
expressly permitted by the terms hereof) having the effect of reducing a
Stockholder's economic interest in Shares or reducing a Stockholder's exposure
to a decrease in fair market value of Shares.
Third Party. "Third Party" shall mean any Person other than
the Company.
Transaction Price. "Transaction Price" shall mean $.50 per
Share of Common Stock (as equitably adjusted for stock dividends, stock
splits, reverse stock splits and other similar reclassifications).
Transfer. "Transfer" shall mean to transfer, sell, assign,
pledge, hypothecate, give, create a security interest in or lien on, place in
trust (voting or otherwise), assign or in any other way encumber or dispose
of, directly or indirectly and whether or not by operation of law or for value,
any Shares.
ARTICLE II
Covenants and Conditions
Section 2.1 Restrictions on Transfers. Without the prior
written consent of JWC Group Stockholders holding a majority of the aggregate
number of Shares held by all of the JWC Group Stockholders, no Stockholder may
7
11
Transfer all or any part of the Shares owned by such Stockholder other than a
Transfer of Shares which is (i) a Permitted Transfer, (ii) pursuant to a Public
Offering, (iii) for any JWC Group Stockholder, Management Stockholder or
Non-Management Stockholder, made after a Public Offering, pursuant to a Rule
144 Transaction; provided that no Management Stockholder or Non-Management
Stockholder shall Transfer, pursuant to any Rule 144 Transaction, an
aggregate number of Shares that, together with all prior Transfers by such
Management Stockholder or Non-Management Stockholder pursuant to one or more
Rule 144 Transactions and Public Offerings, represents more than (A) the
aggregate number of Shares Transferred by the JWC Group Stockholders other than
pursuant to a Permitted Transfer multiplied by (B) such Management
Stockholders' or Non-Management Stockholders' Proportionate Equity Interest
or (iv) pursuant to another section of this Article II. For purposes of this
Section 2.1, "Proportionate Equity Interest" shall mean the number of Shares
set forth on the Schedule opposite the Management Stockholder's or
Non-Management Stockholder's name plus the number of Shares underlying options
granted to such Management Stockholder or Non-Management Stockholder pursuant
to the Purchase Agreement (to the extent exercisable) divided by the aggregate
number of Shares set forth on the Schedule opposite the names of the JWC Group
Stockholders, in each case as equitably adjusted to account for stock
dividends, stock splits, reverse stock splits or other similar
reclassifications. For purposes of calculating the Proportionate Equity
Interest only, the number of Shares set forth opposite any Stockholder's name
on the Schedule shall not include any adjustments to such number arising out of
Transfers pursuant to Rule 144 Transactions or Public Offerings. Any Transfer
of Shares pursuant to this Section 2.1 (other than pursuant to Sections 2.1
(ii) and (iii)) shall remain subject to the Transfer restrictions of this
Agreement, and each intended transferee pursuant to this Section shall
execute and deliver to the Company a counterpart of this Agreement, which shall
evidence such transferee's agreement that the Shares intended to be Transferred
shall continue to be subject to this Agreement and that as to such Shares the
transferee shall be bound by the restrictions of this Agreement as a
Stockholder hereunder.
8
12
Section 2.2 Call by the Company.
(a) If the employment of a Management Stockholder
by the Company or any of its Subsidiaries shall terminate (a "Call Event")
prior to the completion of the Company's initial Public Offering, the Company
shall have the right to purchase (the "Call Option"), by delivery of a written
notice (the "Call Notice") to such terminated Management Stockholder or such
Management Stockholder's Permitted Transferees (the "Call Group") no later than
ninety (90) days after the date of such Call Event, and such Management
Stockholder and the Call Group shall be required to sell all (but not less than
all) of the Shares which are owned by the members of the Call Group on the date
of such Call Event (collectively, the "Call Securities") at a price per Share
equal to the Call Price (as defined in Section 2.2(c) below) applicable to such
Shares.
(b) Notwithstanding anything set forth in this
Section 2.2 to the contrary, prior to the exercise of the Call Option by the
Company, the Board may, in its sole discretion, elect to assign the Company's
right to exercise the Call Option to purchase all, but not less than all, of
the Call Securities to the JWC Group Stockholders. If the Board so elects,
the Company shall give notice of such assignment to each JWC Group Stockholder
(the "Call Assignment Notice"), indicating the number of Call Securities each
JWC Group Stockholder is entitled to purchase (including the right to
over-allotment of Call Securities, if any), the Call Price applicable to such
Shares and the date of the closing of such purchase under this Section 2.2.
Within five (5) Business Days of the Call Assignment Notice, those JWC Group
Stockholders who intend to purchase Call Securities pursuant to this Section
2.2(b) (the "Call Securities Electing Stockholders") shall notify the Company
in writing of such intention, indicating the number of Call Securities
(including over-allotments, if any) they intend to purchase. The right to
purchase such Call Securities shall be allocated to the JWC Group Stockholders
pro rata (based on the number of Shares each JWC Group Stockholder (together
with each such JWC Group Stockholder's Permitted Transferees) owns in relation
to the total number of Shares owned by all of the JWC Group Stockholders); pro-
vided, however, that if any JWC Group Stockholder does not elect to purchase
the number of Call Securities which such JWC
9
13
Group Stockholder (and its Permitted Transferees) may purchase pursuant to this
Section 2.2(b), then the Call Securities Electing Stockholders (and their
Permitted Transferees) may elect to purchase the remaining Call Securities.
The right to purchase the remaining Call Securities shall be allocated to the
Call Securities Electing Stockholders pro rata (based on the number of Shares
each Call Securities Electing Stockholder (together with their Permitted Trans-
ferees) owns in relation to the total number of Shares owned by all of the Call
Securities Electing Stockholders).
(c) For purposes of this Section 2.2, the term
"Call Price" shall mean (i) if the employment of the Management Stockholder
with the Company or one of its Subsidiaries is terminated for Cause or is
terminated by the Management Stockholder without Good Reason, the lower of the
Transaction Price and the fair market value (as determined by the Board) of
each Share; and (ii) if the employment of the Management Stockholder is
terminated other than for Cause or the Management Stockholder voluntarily
terminates his or her employment with the Company or one of its Subsidiaries
for Good Reason, the greater of the Transaction Price and the fair market value
(as determined by the Board) of each Share.
(d) The closing of any purchase of Call Securities
pursuant to Section 2.2(a) or 2.2(b) shall take place at the principal office
of the Company (i) with respect to purchases by the Company or a Designated
Employee (as defined below), on the tenth (10th) Business Day after the date of
the Call Notice and (ii) with respect to any JWC Group Stockholder, on the
tenth (10th) Business Day after notifying the Company in writing of its
intention to exercise its right to purchase pursuant to Section 2.2(b). At
such closing, the Company, the JWC Group Stockholders or the Designated
Employee, as the case may be, shall deliver to the Call Group, against delivery
of certificates (duly endorsed or accompanied by duly executed stock powers)
representing the Call Securities, a certified check or checks payable to the
Management Stockholder and/or the Permitted Transferees, as the case may be,
in an amount equal to the aggregate Call Price payable in respect of such Call
Securities. All of the foregoing deliveries will be deemed to be made simul-
taneously, and none shall be deemed completed until all have been completed.
Notwithstanding anything in this
10
14
Section 2.3(d) to the contrary, to the extent that the Company has insufficient
funds legally available for the repurchase of equity securities of the Company
or the Company is not permitted to repurchase for cash equity securities of
terminated employees pursuant to the agreements or indentures governing
indebtedness for borrowed money of the Company or any Subsidiary, the Company
may pay the purchase price for any Call Securities by delivery of a
subordinated promissory note (a "Promissory Note") in substantially the form
attached hereto as Exhibit B in an original principal amount equal to that
portion of the Call Price not paid in cash. If an agreement or indenture
referred to in the preceding sentence contains a restriction on the amount of
Call Securities that can be repurchased from any terminated Management
Stockholder or his Permitted Transferees in any given fiscal year of the
Company, the maximum amount which the Company shall be permitted to pay for the
repurchase of Call Securities from a terminated Management Stockholder or his
Permitted Transferees shall be, in the aggregate, (x) the maximum amount
permitted by such agreement or indenture for the fiscal year of the Company in
which such Management Stockholder's employment with the Company terminates,
less (y) the aggregate amount previously paid by the Company to repurchase Call
Securities from any other Management Stockholder whose employment with the
Company terminated in such fiscal year. Any amounts which would otherwise be
available with respect to any fiscal year of the Company for the repurchase of
Call Securities shall first be applied to repurchase outstanding Promissory
Notes issued under this Section 2.3(d), in the order in which such Promissory
Notes were issued, until all such Promissory Notes have been repurchased in
accordance herewith. Repurchases shall be applied first to accrued and unpaid
interest and second to principal.
(e) Notwithstanding anything set forth in this
Section 2.2 to the contrary, prior to the exercise by the Company of its Call
Option to purchase Call Securities pursuant to this Section 2.2, one or more
new or existing employees of the Company or any of its Subsidiaries may, in
the sole discretion of the Board, be designated by the Board (individually a
"Designated Employee" and collectively, "Designated Employees") who shall have
the right, but not the obligation, to exercise the Call Option and to acquire,
in lieu of the Company, some or all (as determined by the Company) of the Call
11
15
Securities that the Company is entitled to purchase from the Call Group
hereunder, for cash and on the same terms and conditions as set forth in
Section 2.2(d) which apply to the repurchase of Call Securities by the Company.
Concurrently with any such purchase of Call Securities by any such Designated
Employee, such Designated Employee who is not already a Management Stockholder
shall execute a counterpart of this Agreement whereupon such Designated
Employee shall be deemed a "Management Stockholder" and shall have the same
rights and be bound by the same obligations as a Management Stockholder
hereunder.
(f) Subject to Section 2.2(b), if neither the
Company nor any Designated Employee elect to exercise the Call Option and
deliver a Call Notice within ninety (90) days of a Call Event, then the Call
Option provided in this Section 2.2 shall terminate, but the Management
Stockholder or his Permitted Transferees shall continue to hold such Call
Securities pursuant to all of the other provisions of this Agreement.
(g) Notwithstanding anything in this Agreement to
the contrary, the provisions of this Section 2.2 shall not apply to any Shares
owned by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇. ▇▇▇▇▇.
Section 2.3 Come Along. Except as provided in Section
2.3(c) hereof, no JWC Group Stockholder shall Transfer (in one or a series of
transactions within any 24-month period) Shares representing more than ten per-
cent (10%) of the outstanding Shares (calculated on a fully diluted basis) to a
Third Party who is not a Permitted Transferee without complying with the
terms and conditions set forth in Sections 2.3(a) and 2.3(b) below.
(a) Any JWC Group Stockholder, when desiring to
Transfer such Shares (the "Transferor"), shall give not less than ten (10) days
prior written notice of such intended Transfer to each other Stockholder and
to the Company. Such notice (the "Participation Notice") shall set forth the
terms and conditions of such proposed Transfer, including the name of the
prospective transferee, the number of Shares proposed to be transferred (the
"Participation Securities") by the Transferor, the purchase price per Share
proposed to be paid therefor and the payment terms and type of transfer to be
effectuated. Within ten (10) days following the delivery
12
16
of the Participation Notice by the Transferor to each other Stockholder and to
the Company, each Stockholder desiring to participate in such proposed Transfer
(each, a "Participating Offeree") shall, by notice in writing to the Transferor
and to the Company, have the opportunity and right to sell to the purchasers in
such proposed Transfer (upon substantially the same terms and conditions as
the Transferor provided that if the Transferor is Transferring Preferred Stock
and if the financial condition and prospects of the Company are such that, in
the good faith determination of the proposed transferee, the liquidation
preference of the Preferred Stock has value to the proposed transferee, the
purchase price per Share of Common Stock may be adjusted to take into account
the value of the liquidation preference) up to that number of Shares owned by
such Participating Offeree as shall equal the product of (i) a fraction, the
numerator of which is the number of Shares owned by such Participating
Offeree as of the date of such proposed Transfer and the denominator of which
is the aggregate number of Shares actually owned as of the date of such
Participation Notice by the Transferor and by all Participating Offerees,
multiplied by (ii) the number of Participation Securities. The amount of
Participation Securities to be sold by the Transferor shall be reduced to the
extent necessary to provide for such sales of Shares by Participating
Offerees.
(b) At the closing of any proposed Transfer in
respect of which a Participation Notice has been delivered, the Transferor,
together with all Participating Offerees, shall deliver to the proposed
transferee certificates evidencing the Shares to be sold thereto (duly endorsed
or with duly executed stock powers) and shall receive in exchange therefor the
consideration to be paid or delivered by the proposed transferee in respect
of such Shares as described in the Participation Notice.
(c) The provisions of this Section 2.3 shall not
apply to (i) any Permitted Transfer, (ii) any Transfer pursuant to or following
a Public Offering or (iii) any Transfer pursuant to Section 2.4.
13
17
Section 2.4 Take Along.
(a) If a JWC Group Stockholder or group of JWC
Group Stockholders holding more than one-third (1/3) of the then outstanding
Shares (the "Take Along Group") determine to sell or exchange (in a business
combination or otherwise), in one or a series of bona fide arms-length
transactions to a Third Party who is not an Affiliate of the Take Along Group,
50% or more of the aggregate number of Shares owned by the JWC Group Stock-
holders on the date of the closing under the Purchase Agreement (as equitably
adjusted to account for stock dividends, stock splits, reverse stock splits or
other similar reclassifications), then, upon fifteen (15) days written notice
by the Take Along Group to each other Stockholder, which notice shall include
reasonable details of the proposed sale or exchange including the proposed
time and place of closing and the consideration to be received by the Take
Along Group (such notice being referred to as the "Sale Request"), each other
Stockholder (each, a "Seller") shall be obligated to, and shall sell,
transfer and deliver, or cause to be sold, transferred and delivered, to such
Third Party on substantially the same terms as the Take Along Group, that
number of Shares owned by such Seller as shall equal the product of (i) a
fraction, the numerator of which is the number of Shares proposed to be
transferred by the Take Along Group as of the date of such Sale Request and the
denominator of which is the aggregate number of Shares actually owned as of the
date of such Sale Request by the Take Along Group, multiplied by (ii) the
number of Shares actually owned as of the date of such Sale Request by such
Seller; provided that if the Take Along Group is selling or exchanging
Preferred Stock and if the financial condition and prospects of the Company are
such that, in the good faith determination of such Third Party, the liquidation
preference of the Preferred Stock has value to such Third Party, the
consideration to the Sellers for their Common Stock may be adjusted to take
into account the value of the liquidation preference. Each Seller shall (i)
deliver certificates for all of its Shares at the closing of the proposed
Transfer, free and clear of all claims, liens and encumbrances and (ii) if
stockholder approval of the transaction is required, vote its Shares in favor
thereof.
14
18
(b) The provisions of this Section 2.4 shall not
apply to (i) any Transfer pursuant to or following a Public Offering or (ii)
a Permitted Transfer.
Section 2.5 Purchase Rights.
(a) Purchase Rights. In the event that, prior to
March 31, 2000, the Board determines that Jillian's Entertainment Corporation,
a Florida corporation ("Jillian's"), requires additional capital funding in
order to achieve the Base Plan (as defined in the Stock Option Agreement
attached as Exhibit A to the Purchase Agreement and subject to adjustment from
time to time as set forth in such Stock Option Agreement) and neither the
Company nor Jillian's is able to secure such funding, on acceptable terms, at
an all-in cost of capital of no more than twenty percent (20%) annually
within ninety (90) days of such determination (JWC Associates or its Affiliates
having used reasonable best efforts to secure such funding on behalf of the
Company or Jillian's), then each of the Stockholders will have the right to
purchase a pro rata number of newly issued Shares (calculated on a fully
diluted basis, excluding the effect of any options issued under the Company's
1997 Non-Qualified Stock Option Plan) of Common Stock or junior Preferred Stock
for $0.9322 per Share (as equitably adjusted for stock dividends, stock
splits, reverse stock splits and other similar reclassifications) (a "Company
Purchase Right"). The total number of Shares of Common Stock and junior
Preferred Stock that may be purchased pursuant to the Company Purchase Rights
shall not exceed 7,000,000 (as equitably adjusted for stock dividends, stock
splits, reverse stock splits and other similar reclassifications). To the
extent that a Stockholder does not exercise its Company Purchase Right (a
"Non-Exercising Stockholder"), the remaining Stockholders will each have the
right to purchase a number of additional newly issued Shares of Common Stock
or junior Preferred Stock for $0.9322 per Share (as equitably adjusted for
stock dividends, stock splits, reverse stock splits and other similar
reclassifications), equal to a pro rata portion (calculated on a fully diluted
basis, excluding the Non-Exercising Stockholder and the effect of any options
issued under the Company's 1997 Non-Qualified Stock Option Plan) of the
number of such Shares that could have been purchased by such Non-Exercising
Stockholder pursuant to the exercise of its Company ▇▇▇▇▇▇▇▇
▇▇
▇▇
Right. The Company Purchase Rights may not be sold, transferred, assigned,
pledged or otherwise disposed of or encumbered, in whole or in part, without
the prior written consent of each of the Stockholders.
(b) Notice from the Company. In the event the
Company proposes to issue Shares pursuant to Section 2.5(a), the Company shall
give each Stockholder written notice of such proposal, describing the type of
Shares to be issued and the price and the terms upon which the Company proposes
to issue the same. For a period of ten (10) days following the delivery of
such notice by the Company, the Company shall be deemed to have irrevocably
offered to sell to each Stockholder its pro rata portion of such Shares,
calculated in accordance with Section 2.5(a), for the price and upon the terms
specified in the notice. Each Stockholder may exercise its Company Purchase
Right by giving written notice to the Company within such ten (10) day period
and stating therein the quantity of such Shares to be purchased.
(c) Failure to Exercise. In the event that any
Stockholder fails to exercise in full its Company Purchase Right within said
ten (10) day period, the Company shall give written notice to each Stockholder
who fully exercised its Company Purchase Right of the aggregate number of
additional Shares which may be purchased by such Stockholders pursuant to
Section 2.5(a). For a period of ten (10) days following the delivery of such
notice by the Company, the Company shall be deemed to have irrevocably offered
to sell to each such Stockholder its pro rata portion of such Shares,
calculated in accordance with Section 2.5(a), for the price and upon the
terms specified in the notice. Each such Stockholder may exercise its right to
purchase such Shares by giving written notice to the Company within such ten
(10) day period.
(d) Closing. The closing for any issuance
pursuant to this Section 2.5 shall take place as proposed by the Company with
respect to the Shares to be issued, at which closing the Company shall deliver
certificates for the Shares in the respective names of the purchasing
Stockholders against receipt of payment therefor.
16
20
Section 2.6 Restrictions on Other Agreements. Until the
completion of a Public Offering by the Company, no Stockholder (other than the
JWC Group Stockholders as among themselves) shall grant any proxy or enter into
or agree to be bound by any voting trust with respect to the Shares, nor shall
any Stockholder enter into any stockholders agreements or arrangements of any
kind with any person with respect to the Shares on terms which conflict with
the provisions of this Agreement (whether or not such agreements and
arrangements are with other Stockholders), including, but not limited to,
agreements or arrangements with respect to the acquisition, disposition or
voting of Shares inconsistent herewith.
Section 2.7 Synthetic Sales. Any Synthetic Sales by a
Management Stockholder then employed by the Company or any of its Subsidiaries
shall require the prior written approval of the Board.
Section 2.8 Corporate Governance. Until the tenth (10th)
anniversary of the date of the closing under the Purchase Agreement, the
Company and each of the Stockholders shall take all action (including but not
limited to such Stockholder's voting, or executing proxies or written
consents with respect to, the Shares held at the time by such Stockholder) as
may be requested from time to time by the JWC Group Stockholder Representative
(as defined below) or a majority in interest of the JWC Group Stockholders, so
that the Board shall include such number of members designated by the JWC Group
Stockholder Representative or a majority in interest of the JWC Group
Stockholders. The JWC Group Stockholder Representative or a majority in
interest of the JWC Group Stockholders shall also be entitled to require that
any member of the Board so designated pursuant to this Section 2.8 be removed
or replaced by another designee of the JWC Group Stockholder Representative or
a majority in interest of the JWC Group Stockholders, in which event the
Company and each of the Stockholders shall take all action (including but not
limited to such Stockholder's voting, or executing written consents with
respect to, the Shares held at the time by such Stockholder) as may be
necessary to effect such removal or replacement.
17
21
ARTICLE III
Registration Rights
Section 3.1 General. For purposes of Article III: (a) the
terms "register", "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the 1933 Act and the declaration or ordering of effectiveness of such
registration statement; and (b) the term "Holder" means any Stockholder or
Permitted Transferee thereof.
Section 3.2 Demand Registrations.
(a) If the Company shall receive a written
request (specifying that it is being made pursuant to this Section 3.2) from
the JWC Group Stockholders who together with their Permitted Transferees own in
the aggregate at least ten percent (10%) of the Shares (as equitably adjusted
to account for stock dividends, stock splits, reverse stock splits or other
similar reclassifications) acquired by the JWC Group Stockholders at the time
of the closing under the Purchase Agreement (the "Requesting JWC Group
Stockholders") that the Company file a registration statement under the 1933
Act, or a similar document pursuant to any other statute then in effect
corresponding to the 1933 Act, covering the registration of Common Stock,
then the Company shall, not later than ninety (90) days after receipt by the
Company of a written request for a demand registration pursuant to this Section
3.2, file a registration statement with the SEC relating to such Registrable
Securities as to which such request for a demand registration relates (the
"Requested Shares"), and the Company shall use its best efforts to cause the
offering of such Requested Shares to be registered under the 1933 Act. The
Company shall be obligated to effect only three (3) registrations of
Registrable Securities pursuant to this Section 3.2 and such registrations may
be effected no earlier than six (6) months, twelve (12) months or eighteen (18)
months, respectively, following completion of an initial Public Offering of
Common Stock by the Company.
(b) If, pursuant to Section 3.3, the total amount
of securities that all Holders and all other holders of securities which have
applicable registration
18
22
rights request to be included in an offering made pursuant to this Section
3.2 exceeds the amount of securities that the underwriters reasonably believe
compatible with the success of the offering, then the Company will include in
such registration only the number of securities which, in the good faith
opinion of such underwriters, can be sold, selected from the securities
requested to be included by all Holders and such other holders pro rata based
on the number of securities which each of them owns.
Section 3.3 Piggyback Registration.
(a) If, at any time, the Company determines to register any
of its equity securities (including securities convertible into equity
securities, but excluding equity securities being registered pursuant to a
registration statement on Form S-8 and equity securities issued in connection
with mezzanine debt or senior financing of the Company, or equity securities
issued upon conversion or exchange thereof or in connection therewith), for
its own account in connection with the public offering of such securities
(other than the initial Public Offering), the Company shall, at each such time,
promptly give each JWC Group Stockholder or Permitted Transferee thereof
written notice of such determination no later than twenty (20) days before the
effective date of any such registration. Upon the written request of any JWC
Group Stockholder or Permitted Transferee thereof received by the Company
within ten (10) days after the giving of any such notice by the Company, the
Company shall use its best efforts to cause to be registered under the 1933 Act
all of the Registrable Shares of each JWC Group Stockholder or Permitted
Transferee thereof that such JWC Group Stockholder or Permitted Transferee
thereof has requested be registered. If the total amount of securities that
are to be included by the Company in such registration exceeds the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, then the Company will include in such registration only the
number of securities which in the opinion of such underwriters can be sold,
selected from the securities requested to be included by all JWC Group
Stockholders and Permitted Transferees thereof pro rata based on the number of
securities which each of them owns.
19
23
(b) If, at any time, the Company determines to
register for the account of any JWC Group Stockholder (whether pursuant to
the provisions of Sections 3.2 or 3.3(a) or otherwise), any of its equity
securities (including securities convertible into equity securities, but
excluding equity securities being registered pursuant to a registration
statement on Form S-8 and equity securities issued in connection with
mezzanine debt or senior financing of the Company, or equity securities issued
upon conversion or exchange thereof or in connection therewith), under the 1933
Act in connection with the public offering of such securities (other than the
initial Public Offering), the Company shall, at each such time, promptly give
each Holder written notice of such determination no later than twenty (20) days
before the effective date of any such registration. Upon the written request
of any Holder received by the Company within ten (10) days after the giving of
any such notice by the Company, the Company shall use its best efforts to cause
to be registered under the 1933 Act all of the Registrable Shares of each
Holder that such Holder has requested be registered. If the total amount of
securities that are to be included by the Company in such registration exceeds
the amount of securities that the underwriters reasonably believe compatible
with the success of the offering, then the Company will include in such
registration only the number of securities which in the opinion of such
underwriters can be sold, selected from the securities requested to be
included by all Holders pro rata based on the number of securities which each
of them owns.
Section 3.4 Obligations of the Company.
(a) Whenever required under Section 3.2 or 3.3
hereof to use its best efforts to effect the registration of any Registrable
Securities, the Company shall:
(1) prepare and file with the SEC a
registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become
and remain effective, including, without limitation, filing of
post-effective amendments and supplements to any registration
statement or prospectus necessary to keep the registra-
20
24
tion statement current; provided, however, that if such registration
statement does not become effective, then any demand registration
pursuant to Section 3.2 prompting such undertaking by the Company
shall be deemed to be rescinded and retracted and shall not be counted
as, or deemed or considered to be or to have been, a demand
registration pursuant to Section 3.2 for any purpose;
(2) as expeditiously as reasonably
possible, 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 1933 Act with respect to the dis-
position of all securities covered by such registration statement and
to keep each registration and qualification under this Agreement
effective (and in compliance with the 1933 Act) by such actions as may
be necessary or appropriate for a period of up to 180 days (if, in
the reasonable discretion of the Holders owning securities covered by
such registration statement, such period of time is necessary for
the successful completion of the offering of such securities) after
the effective date of such registration statement, all as requested by
such Holders;
(3) as expeditiously as reasonably
possible, furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with
the requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Reg-
istrable Securities owned by them;
(4) as expeditiously as reasonably
possible, use its best efforts to register and qualify the securities
covered by such registration statement under such securities or
"blue sky" laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered by the
21
25
registration statement, 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 jurisdiction, and further provided that (anything
in this Agreement to the contrary notwithstanding with respect to
the bearing of expenses) if any jurisdiction in which the securities
shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that
jurisdiction be borne by selling stockholders, then such expenses
shall be payable by selling stockholders pro rata to the extent
required by such jurisdiction;
(5) use its best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Secu-
rities in the United States;
(6) notify each seller of Registrable
Securities covered by such registration statement, at any time when
a prospectus relating thereto is required to be delivered under
the 1933 Act, upon discovery that, or upon 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 any material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made, and at the request of any such seller or Holders promptly
prepare to furnish to such seller or Holders a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
22
26
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(7) otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC, and make
generally available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve (12) months, but not more than eighteen (18) months, beginning
with the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act, and will furnish to each
such seller a copy of any post-effective amendment or supplement to
such registration statement or prospectus;
(8) provide and cause to be maintained
a transfer agent and registrar for all Registrable Securities covered
by such registration statement from and after a date not later than
the effective date of such registration statement; and
(9) use its best efforts to list all
Registrable Securities covered by such registration statement on any
securities exchange on which any class of Registrable Securities is
then listed.
(b) In the case of any underwritten offering, the
Company will furnish to each Holder on whose behalf Registrable Securities have
been registered pursuant to this Agreement a signed counterpart, addressed to
such Holder, of an opinion of counsel for the Company dated the effective date
of such registration statement, and such opinion of counsel shall cover those
matters which are customarily covered in opinions of issuer's counsel delivered
to underwriters in connection with underwritten public offerings of securities.
(c) Except as otherwise set forth in Section 3.3,
if the Company at any time proposes to register any of its securities under the
1933 Act, wheth-
23
27
er or not for sale for its own account, and such securities are to be
distributed by or through one or more underwriters, then the Company will make
reasonable efforts, if requested by any Holder of Registrable Securities who
requests registration of Registrable Securities in connection therewith
pursuant to Section 3.2 or 3.3 hereof, to arrange for such underwriters to
include such Registrable Securities among the securities to be distributed by
or through such underwriters.
(d) In connection with the preparation and filing
of each registration statement registering Registrable Securities under this
Agreement, the Company will give the Holders of Registrable Securities on whose
behalf such Registrable Securities are to be so registered and their
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the SEC, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the Company
with its officers, its counsel and the independent public accountants who
have certified its financial statements, as shall be necessary, in the
opinion of such Holders or such underwriters or their respective counsel, in
order to conduct a reasonable and diligent investigation within the meaning of
the 1933 Act.
Section 3.5 Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Article III that the Holders shall furnish to the Company such information
regarding them, the Registrable Securities held by them, and the intended
method of disposition of such securities as the Company shall reasonably
request and as shall be required in connection with the action to be taken by
the Company.
Section 3.6 Expenses of Registration. All expenses incurred
in connection with a registration pursuant to Section 3.2 or 3.3 hereof
(excluding underwriters' discounts and commissions, which shall be borne by the
sellers), including without limitation all registration and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company and the reasonable fees and disbursements of one counsel
24
28
for the selling Holders (which counsel shall be selected by a majority
in interest of such Holders based on the number of Registrable Securities
included in such registration) shall be borne by the Company.
Section 3.7 Underwriting Requirements. In connection with
any underwritten registration of Registrable Securities under this Agreement,
the Company will, if requested by the underwriters for any Registrable
Securities included in such registration, enter into an underwriting agreement
with such underwriters for such offering, such agreement to contain such
representations and warranties by the Company, and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, provisions relating
to indemnification and contribution. The Holders on whose behalf Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement, and the representations and warranties by the
Company and the other agreements on the part of the Company to and for the
benefit of such underwriters shall be also made to and for the benefit of such
Holders of Registrable Securities. Such underwriters shall be selected (i) by
the Company, in the case of a registration pursuant to Section 3.3, or (ii)
by the Holders requesting a demand registration, in the case of a regis-
tration pursuant to Section 3.2.
Section 3.8 Indemnification. In the event any Registrable
Securities are included in a registration statement under Article III:
(a) To the fullest extent permitted by law, the
Company will indemnify and hold harmless each Holder requesting or joining in a
registration, any underwriter (as defined in the ▇▇▇▇ ▇▇▇) for it, and each
person, if any, who controls such Holder or such underwriter within the
meaning of the 1933 Act, from and against any losses, claims, damages, expenses
(including reasonable attorneys' fees and expenses and reasonable costs of
investigation) or liabilities, joint or several, to which they or any of them
may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages, expenses or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based on any
untrue or alleged
25
29
untrue statement of any material fact contained in such registration statement
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon 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
arise out of any alleged violation by the Company of any rule or regulation
promulgated under the 1933 Act applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration;
provided, however, that the indemnity agreement contained in this Section
3.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, expense, 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 to anyone for any such loss claim, damage,
expense, liability or action to the extent that it arises out of or is based
upon an untrue statement or omission made in connection with such registra-
tion statement, preliminary prospectus, final prospectus or amendments or
supplements thereto in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by such
Holder, underwriter or control person. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Holder, underwriter or control person and shall survive the transfer of such
securities by such Holder.
(b) To the fullest extent permitted by law, each
Holder requesting or joining in a registration will indemnify and hold harmless
the Company, as the case may be, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who controls
the Company within the meaning of the 1933 Act, and each agent and any
underwriter for the Company and any person who controls any such agent or
underwriter and each other Holder and any person who controls such Holder
(within the meaning of the ▇▇▇▇ ▇▇▇) against any losses, claims, damages or
liabilities to which the Company or any such director, officer, control person,
agent, underwriter, or other Holder may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon an untrue
26
30
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission was
made in such registration statement, preliminary or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Holder with respect to such Holder
expressly for use in connection with such registration; and such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, control person, agent, underwriter, or other Holder
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity obligation of each
such Holder hereunder shall be limited to and shall not exceed the proceeds
actually received by such Holder upon a sale of Registrable Securities pursuant
to a registration statement hereunder; and provided, further, that the
indemnity agreement contained in this Section 3.8(b) shall not apply to amounts
paid in settlements effected without the consent of such Holder (which
consent shall not be unreasonably withheld). Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer, Holder, underwriter or control
person and shall survive the transfer of such securities by such Holder.
(c) Any person seeking indemnification under this
Section 3.8 will (i) give prompt notice to the indemnifying party of any claim
with respect to which it seeks indemnification (but the failure to give such
notice will not affect the right to indemnification hereunder, unless the
indemnifying party is materially prejudiced by such failure) and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest may exist
between such indemnified and indemnifying parties with respect to such claim,
permit such indemnifying party, and other indemnifying parties similarly
situated, jointly to assume the defense of such claim with counsel reasonably
satisfactory to the parties. In the event that the indemnifying parties
cannot
27
31
mutually agree as to the selection of counsel, each indemnifying party may
retain separate counsel to act on its behalf and at its expense. The
indemnified party shall in all events be entitled to participate in such
defense at its expense through its own counsel. If such defense is not assumed
by the indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim, in which event the indemnifying party shall be obligated to pay the
reasonable fees and expenses of such additional counsel.
(d) If for any reason the foregoing indemnification
is unavailable to any party or insufficient to hold it harmless as and to the
extent contemplated by the preceding paragraphs of this Section 3.8, then
each indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage, expense or liability
in such proportion as is appropriate to reflect the relative benefits received
by the applicable indemnifying party, on the one hand, and the applicable
indemnified party, as the case may be, on the other hand, and also the relative
fault of the applicable indemnifying party and the applicable indemnified
party, as the case may be, as well as any other relevant equitable
considerations.
Section 3.9 Lock-Up Agreement. If required by the
underwriter, each Stockholder agrees not to sell or otherwise transfer or
dispose of any Common Stock (or other securities) of the Company held by such
Stockholder (other than securities included in the applicable registration
statement or shares purchased in the public
28
32
market after the effective date of registration) or any interest or future
interest therein during such period (not to exceed 180 days) as is acceptable
to the underwriter following the effective date of each registration
statement of the Company filed under the 1933 Act which includes securities to
be sold to the public in an underwritten offering. The Company may impose
stop transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said
period.
Section 3.10 No Inconsistent Agreements. The Company
represents and warrants that it has not entered into, and agrees that it will
not hereafter enter into, any agreement with respect to the registration of its
securities that is inconsistent with (or superior to) the rights granted to the
Holders of Registrable Securities in this Agreement.
Section 3.11 Stock Split and Reverse Stock Split. If, on or
after the receipt by the Company of a request for registration of a public
offering pursuant to Section 3.2 hereof, the proposed managing underwriter or
underwriters of such offering reasonably believes that the number of shares to
be registered is not the number necessary for the success of such offering, the
Company shall use its best efforts to cause each share of its outstanding
Common Stock to be converted into such number of shares of such Common Stock so
that the number of shares of Registrable Securities to be registered is equal
to the number which such managing underwriter or underwriters reasonably
believes is necessary for the success of such offering. If necessary in
connection therewith, the Company shall use its best efforts to cause to be
recommended, approved and adopted by its Board and approved and adopted by its
stockholders, and, if so approved and adopted, file and cause to become
effective, an amendment to its certificate of incorporation increasing the
number of shares of Common Stock which the Company is authorized to issue.
Each Stockholder, together with its Permitted Transferees, hereby agrees to
vote the Shares held by it in favor of adopting such amendment.
29
33
ARTICLE IV
Miscellaneous
Section 4.1 Remedies. The parties to this Agreement
acknowledge and agree that the covenants of the Company and the Stockholders
set forth in this Agreement may be enforced in equity by a decree requiring
specific performance. In the event of a breach of any material provision of
this Agreement, the aggrieved party will be entitled to institute and prosecute
proceedings in any court of competent jurisdiction to enforce specific
performance of such provision, as well as to obtain damages for breach of this
Agreement. Without limiting the foregoing, if any dispute arises concerning
the sale or other disposition of any of the Shares subject to this Agreement or
concerning any other provisions hereof or the obligations of the parties
hereunder, the parties to this Agreement agree that an injunction may be issued
in connection therewith (including, without limitation, restraining the sale or
other disposition of such Shares or rescinding any such sale or other
disposition). Such remedies shall be cumulative and non-exclusive and shall be
in addition to any other rights and remedies the parties may have under this
Agreement or otherwise.
Section 4.2 Entire Agreement; Amendment; Waiver. This
Agreement, together with the Schedule hereto and the Purchase Agreement, sets
forth the entire understanding of the parties, and as of the closing
contemplated by the Purchase Agreement supersedes all prior agreements and all
other arrangements and communications, whether oral or written, with respect
to the subject matter hereof. The Schedule may be amended to reflect changes
in the composition of the Stockholders and changes in stock ownership that may
occur from time to time as a result of Permitted Transfers or Transfers
permitted under Article II hereof. Amendments to the Schedule reflecting
Permitted Transfers or Transfers permitted under Article II hereof shall become
effective when a copy of this Agreement, as executed by any new transferee, is
filed with the Company, except as otherwise provided in Section 4.13 hereof.
Any other amendment to, or the termination of, this Agreement shall be in
writing and shall require the written consent of (i) the Company and (ii)
either the JWC Group Stockholder Representative or a majority in interest of
the JWC Group
30
34
Stockholders. Notwithstanding the preceding sentence, no amendment may
adversely affect the JWC Group Stockholders, the Non-Management Stockholders
or the Management Stockholders at any time, unless consented to in writing by a
majority in interest of such adversely affected group. Notwithstanding any
provisions to the contrary contained herein, any party may waive any rights
with respect to which such party is entitled to the benefits under this
Agreement. No waiver of or consent to any departure from any provision of this
Agreement shall be effective unless signed in writing by the party entitled to
the benefit thereof.
Section 4.3 Severability. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof, and this Agreement shall be construed in all
respects as if the invalid or unenforceable provision were omitted.
Section 4.4 Notices. All notices and other communications
necessary or contemplated under this Agreement shall be in writing and shall be
delivered in the manner specified herein or, in the absence of such
specification, shall be deemed to have been duly given three (3) Business Days
after mailing by certified mail, when delivered by hand, upon confirmation of
receipt by telecopy, or one (1) day after sending by overnight delivery
service, to the respective addresses of the parties set forth below:
(a) For notices and communications to the
Management Stockholders or the Non-Management Stockholders, to the respective
addresses set forth in the Schedule;
(b) for notices and communications to the Company:
Jillian's Entertainment
Holdings, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
31
35
with a copy to:
▇.▇. Childs Associates, L.P.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) for notices and communications to the JWC Group
Stockholders, to the respective addresses set forth in the Schedule, with a
copy to:
Skadden, Arps, Slate,
▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
By notice complying with the foregoing provisions of this Section 4.4, each
party shall have the right to change the mailing address for future notices and
communications to such party.
Section 4.5 Binding Effect; Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and to
their respective transferees, successors and assigns; provided, however, that
the rights under this Agreement may not be assigned except as expressly
provided herein, it being understood that the Company's rights hereunder may be
assigned by the Company to any corporation which is the surviving entity in a
merger, consolidation or like event involving the Company [if such merger,
consolidation or like event does not result in a change in control of the
Company]. No such assignment shall relieve an assignor of its obligations
hereunder.
Section 4.6 Governing Law. This Agreement shall be governed
by and construed in accordance with the General Corporation Law of the State of
Delaware as to matters within the scope thereof and as to all other matters
shall be governed by and construed in accordance with the internal laws of the
Commonwealth of Massachusetts (without giving effect to the principles of
conflicts of law thereof).
32
36
Section 4.7 Termination. Without affecting any other
provision of this Agreement requiring termination of any rights in favor of
any Stockholder, Permitted Transferee or any other transferee of Shares, the
provisions of Articles II and III of this Agreement shall terminate as to
such Stockholder, Permitted Transferee or other transferee, when, pursuant to
and in accordance with this Agreement such Stockholder, Permitted Transferee
or other transferee as the case may be, no longer own any Shares; provided that
termination pursuant to this Section 4.7 shall only occur in respect of a
Stockholder after all Permitted Transferees in respect thereof also no longer
own any Shares. As provided above, the provisions of Sections 2.3, 2.4, 2.5
and 2.6 shall not apply to the Shares owned by Stockholders following a Public
Offering.
Section 4.8 Recapitalization, Exchanges, Etc. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to Shares, to any and all shares of capital stock of the Company
or any successor or assign of the Company (whether by merger, consolidation,
sale of assets or otherwise) which may be issued in respect of, in exchange
for, or in substitution of the Shares, by reason of a stock dividend, stock
split, stock issuance, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation or otherwise.
Section 4.9 JWC Group Stockholder Representative. Each
JWC Group Stockholder hereby designates and appoints (and each Permitted
Transferee of each such JWC Group Stockholder is hereby deemed to have so
designated and appointed) each of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as his
attorney-in-fact with full power of substitution for each of them (the "JWC
Group Stockholder Representative"), to serve as the representative of each such
JWC Group Stockholder to perform all such acts as are required, authorized or
contemplated by this Agreement to be performed by such JWC Group Stockholder
and hereby acknowledges that the JWC Group Stockholder Representative shall
be the only person authorized to take any action so required, authorized or
contemplated by this Agreement by each such person. Each such JWC Group
Stockholder further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive
the death or incapaci-
33
37
ty of such JWC Group Stockholder. Each such person hereby authorizes (and each
such Permitted Transferee shall be deemed to have authorized) the other parties
hereby to disregard any notice or other action taken by such person pursuant to
this Agreement except for the JWC Group Stockholder Representative. The other
parties hereto are and will be entitled to rely on any action so taken or any
notice given by the JWC Group Stockholder Representative and are and will be
entitled and authorized to give notices only to the JWC Group Stockholder
Representative for any notice contemplated by this Agreement to be given to
any such person. A successor to the JWC Group Stockholder Representative may
be chosen by a majority in interest of the JWC Group Stockholders, provided
that notice thereof is given by the new JWC Group Stockholder Representative to
the Company and to each other Stockholder.
Section 4.10 Action Necessary to Effectuate the Agreement.
The parties hereto agree to take or cause to be taken all such corporate and
other action as may be necessary to effect the intent and purposes of this
Agreement.
Section 4.11 Purchase for Investment; Legend on Certificate.
Each of the parties acknowledges that all of the Shares held by such party are
being (or have been) acquired for investment and not with a view to the
distribution thereof and that no Transfer of Shares may be made except in
compliance with applicable federal and state securities laws. Each of the
certificates of Shares of the Company which are now or hereafter owned by the
Stockholders and which are subject to the terms of this Agreement shall have
endorsed in writing, stamped or printed, thereon the following legend:
"The shares represented by this stock certificate are
subject to the terms and conditions, including restrictions on transfer, of a
Stockholders Agreement dated as of May [ ], 1997, as amended from time to
time. A copy of the Stockholders Agreement is on file with the Secretary of
the Company and will be mailed to any properly interested person without
charge upon the Company's receipt of a written request therefor. Any sale or
transfer in violation of said Agreement shall be null and void."
34
38
All certificates of Shares shall also bear all legends
required by federal and state securities laws.
Section 4.12 Effectiveness of Transfers. All Shares
Transferred by a Stockholder (other than pursuant to an effective registration
statement under the 1933 Act or pursuant to a Rule 144 Transaction) shall,
except as otherwise expressly stated herein, be held by the transferee
thereof pursuant to this Agreement. Such transferee shall, except as
otherwise expressly stated herein, have all the rights and be subject to all of
the obligations of a Stockholder under this Agreement (as through such party
had so agreed pursuant to Section 4.13 hereof) automatically and without
requiring any further act by such transferee or by any parties to this
Agreement. Without affecting the preceding sentence, if such transferee is
not a Stockholder on the date of such Transfer, then such transferee, as a
condition to such Transfer, shall confirm such transferee's obligations
hereunder in accordance with Section 4.13 hereof. No Shares shall be
Transferred on the Company's books and records, and no Transfer of Shares shall
be otherwise effective, unless any such Transfer is made in accordance with the
terms and conditions of this Agreement, and the Company is hereby authorized by
all of the Stockholders to enter appropriate stop transfer notations on its
transfer records to give effect to this Agreement.
Section 4.13 Additional Stockholders. Subject to the
restrictions on Transfers of Shares contained herein, any Person who is not
already a Stockholder acquiring Shares (except for transferees acquiring Shares
in an offering registered under the 1933 Act or in a Rule 144 Transaction and
except as otherwise permitted by the Board) shall, on or before the Transfer or
issuance to it of Shares, sign a counterpart signature page hereto in form
reasonably satisfactory to the Company and shall thereby become a party to this
Agreement to be bound hereunder as (a) a Management Stockholder if a Permitted
Transferee of a Management Stockholder or an employee of the Company or any of
its Subsidiaries, (b) a JWC Group Stockholder if a Permitted Transferee or an
employee or affiliate of ▇.▇. Childs Associates, Inc. or Equity Partners or (c)
a Non-Management Stockholder if such person or entity does not fall within
either (i) or (ii) above; provided that a transferee which is a Permitted
Transferee under clause (b) of the definition of Permit-
35
39
▇▇▇ Transferee shall not be obligated to so agree until foreclosure on its
pledge.
Section 4.14 No Waiver. No course of dealing and no delay
on the part of any party hereto in exercising any right, power or remedy
conferred by this Agreement shall operate as waiver thereof or otherwise
prejudice such party's rights, powers and remedies. No single or partial
exercise of any rights, powers or remedies conferred by this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
Section 4.15 Counterparts. This Agreement may be executed
in two or more counterparts each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
Section 4.16 Headings. All headings and captions in this
Agreement are for purposes of reference only and shall not be construed to
limit or affect the substance of this Agreement.
Section 4.17 Number; Gender. When the context so requires,
the singular shall include the plural and the plural shall include the singular
and the gender of any pronoun shall include the other gender.
Section 4.18 Effective Time. Notwithstanding anything in
this Agreement to the contrary, this Agreement shall become binding and
effective as of the date of the closing under the Purchase Agreement.
36
40
IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be duly executed under seal as of the date and year first above
written.
JILLIAN'S ENTERTAINMENT
HOLDINGS, INC.
By:
------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
JWC Group Stockholders:
▇.▇. CHILDS EQUITY PARTNERS,
L.P.
By: ▇.▇. Childs Advisors,
L.P., its general partner
By: ▇.▇. Childs Associates,
L.P., its general partner
By: ▇.▇. Childs Associates,
Inc., its general partner
By:
-------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
41
JWC Group Stockholders
(continued):
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as agent and
attorney-in-fact for certain
coinvestors under Purchaser
Appointment of Agent and Power
of Attorney and not in his
individual capacity
42
Management Stockholders:
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
43
Non-Management Stockholders:
-----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
THE BLIND TRUST
UDT 3/26/93
By:
--------------------------
Name:
Title:
-----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
44
Non-Managment Stockholders
(continued):
ISLAND PARTNERS, LTD.
By:
--------------------------
Name:
Title: