Exhibit 99.1
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SHAREHOLDER AGREEMENT
Dated as of August 20, 2007
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS...................................................1
1.1 Certain Defined Terms............................................1
ARTICLE II CORPORATE GOVERNANCE AND INFORMATION RIGHTS...................6
2.1 Board Representation.............................................6
2.2 Investor Shareholder Director Fees and Expenses..................9
ARTICLE III STANDSTILL AND TRANSFERS......................................9
3.1 Standstill Agreement.............................................9
3.2 Transfer Restrictions...........................................10
3.3 Right of First Refusal to Investor Shareholders.................11
3.4 Company's Right of First Refusal................................13
3.5 Securities Law Compliance; Reporting Obligations................14
ARTICLE IV MISCELLANEOUS................................................14
4.1 Termination.....................................................14
4.2 Expenses........................................................14
4.3 Assignment; Benefits............................................15
4.4 Entire Agreement................................................15
4.5 Severability....................................................15
4.6 Amendments and Waivers..........................................15
4.7 Notices.........................................................15
4.8 Governing Law...................................................16
4.9 Submission to Jurisdiction; Waiver of Jury Trial................16
4.10 Counterparts....................................................16
4.11 Further Assurances..............................................16
4.12 Recapitalization, etc...........................................16
4.13 Remedies for Breach; Specific Performance.......................16
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SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "AGREEMENT") is made and entered
into this 20th day of August 2007 among (i) ▇▇▇▇▇▇ + ▇▇▇▇▇▇, Inc., a Delaware
corporation (the "COMPANY"); (ii) each of the shareholders set forth on SCHEDULE
I (the "SCHEDULE OF INVESTOR SHAREHOLDERS") attached hereto; (iii) each of the
shareholders set forth on SCHEDULE II (the "SCHEDULE OF EXISTING SHAREHOLDERS")
attached hereto; and (iv) each Person that subsequently becomes a party hereto
pursuant to a Permitted Transfer.
RECITALS
WHEREAS, this Agreement is made pursuant to (i) the Stock Purchase
Agreement, dated April 25, 2007, by and among the Company and the purchasers
named therein (the "INVESTOR PURCHASE AGREEMENT"), which provides for the
issuance by the Company to the Investor Shareholders of an aggregate of
40,000,000 shares (the "INVESTOR SHARES") of the Common Stock and (ii) the Stock
Purchase Agreement, dated by and among the Company and the Existing Shareholders
dated August 20, 2007, (the "PLACEMENT PURCHASE AGREEMENT", and, together with
the Investor Purchase Agreement, the "PURCHASE AGREEMENTS"), which provides for
the issuance by the Company to the Existing Shareholders of an aggregate of
40,000,000 shares (together with all other shares of Common Stock owned by the
Existing Shareholders or their Affiliates, the "EXISTING SHAREHOLDER SHARES").
The execution of this Agreement is a condition to the closing under the Purchase
Agreements.
WHEREAS, the parties hereto desire to enter into certain
arrangements relating to the Company and the Shares.
NOW, THEREFORE, in consideration of the foregoing recitals and of
the mutual promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings:
"AFFILIATE" means, with respect to any Person, (i) a manager or
managing member if such Person is a limited liability company, a trustee if such
Person is a trust, a general partner if such Person is a limited partnership,
(ii) a director or executive officer of such Person, (iii) a spouse, parent,
sibling or descendant of such Person (or a spouse, parent, sibling or descendant
of any Person identified in (i) and (ii) hereof), and (iv) any other Person
that, directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
"AFFILIATE TRANSACTION" means any action of either the Company or
any Subsidiary of the Company, direct or indirect, to (i) make or effect any
payment to any Affiliate of either the Company or a Subsidiary of the Company,
(ii) sell, lease, transfer or otherwise dispose of any of the Company's or any
of its Subsidiaries' respective properties or assets to any Affiliate of either
the Company or a Subsidiary of the Company, or (iii) enter into, make, amend,
renew or extend any transaction, contract, agreement, understanding, loan,
advance or guarantee with any Affiliate of either the Company or a Subsidiary of
the Company, other than employment agreements approved by the Board in
connection with satisfying its obligations under the Investor Purchase Agreement
and agreements relating to grants of stock options or other equity awards
approved by the Board and permitted by Section 2.1(d)(i) hereof.
"AGREEMENT" has the meaning assigned to such term in the preamble.
"AGREEMENT TERMINATION DATE" means the first date after the Closing
Date on which the Investor Shareholders own of record less than 16,000,000
shares of Common Stock (subject to adjustments for stock splits, subdivisions,
combinations, stock dividends or similar reclassifications of the Common Stock).
"BENEFICIAL OWNER(SHIP)" and "BENEFICIALLY OWN" shall be determined
in accordance with Rule 13d-3 under the Exchange Act; PROVIDED, HOWEVER, that a
Person shall be deemed to beneficially own any securities that such Person or
any of such Person's Affiliates has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (written or oral), or upon the exercise
of conversion rights, exchange rights, rights, warrants or options, or otherwise
(it being understood that such Person shall also be deemed to be the beneficial
owner of the securities convertible into or exchangeable for such securities.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by law to be closed in The
City of New York.
"CAPITAL STOCK" means, with respect to any Person at any time, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital stock, partnership
interests (whether general or limited) or equivalent ownership interests in or
issued by such Person, and with respect to the Company includes, without
limitation, any and all shares of Common Stock.
"CHANGE OF CONTROL" means the occurrence of any of the following
events:
(i) any Person or group is or becomes the beneficial
owner of Voting Securities representing more than 50% of the Total
Voting Power; or
(ii) a merger, consolidation, reorganization or similar
transaction in which the shareholders of the Company immediately
prior to the transaction possess less than 50% of the Voting Power
of the surviving entity (or its parent) immediately after the
transaction; or
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(iii) during any one-year period, individuals who at the
beginning of such period constituted the Board (together with any
new Directors whose election by the Board or whose nomination for
election by the shareholders of the Company was approved by a vote
of a majority of the Directors then still in office who were either
Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board then in office.
"CLOSING" has the meaning assigned to such term in the Purchase
Agreements.
"CLOSING DATE" has the meaning assigned to such term in the Investor
Purchase Agreement.
"COMMITTEE" means each of the Audit Committee and the Compensation
Committee.
"COMMON STOCK" means the Common Stock, par value $0.01 per share, of
the Company and any securities issued in respect thereof, or in substitution
therefor, in connection with any stock split, dividend or combination, or any
reclassification, recapitalization, merger, consolidation, exchange or other
similar reorganization.
"COMPANY" has the meaning assigned to such term in the preamble.
"COMPETITOR" shall mean any Person with a division, department or
Subsidiary principally engaged in a financial planning business, brokerage
business, or tax services business that is competitive with the Company.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise.
"DIRECTOR" means any member of the Board.
"EQUITY SECURITIES" means (a) with respect to a corporation, any and
all shares of Capital Stock and any securities of such corporation convertible
into, or exchangeable or exercisable for, such shares of Capital Stock, and
options, warrants or other rights to acquire such shares of Capital Stock, (b)
with respect to a partnership, limited liability company, trust or similar
Person, any and all units, interests or other partnership/limited liability
company interests, and any units or interests of such partnership, limited
liability company, trust or similar Person convertible into, or exchangeable or
exercisable for, such units or interests, and options, warrants or other rights
to acquire such units or interests, and (c) any other equity ownership or
participation in a Person.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXISTING SHAREHOLDER DIRECTORS" has the meaning assigned to such
term in Section 2.1.
"EXISTING SHAREHOLDERS" means each of the Existing Shareholders and
each Person receiving Common Stock from an Existing Shareholder as a result of a
Permitted Transfer.
"EXISTING SHAREHOLDER SHARES" has the meaning assigned to such term
in the recitals.
"FUTURE SECURITIES" shall have the meaning set forth in SECTION 3.2.
"INVESTOR SHARES" has the meaning assigned to such term in the
recitals.
"INDEPENDENT DIRECTOR" shall have the meaning set forth under the
NASD Marketplace Rules.
"INVESTOR DIRECTOR" means any Director designated or nominated for
election to the Board by the Investor Shareholders pursuant to Section 2.1 of
this Agreement.
"INVESTOR SHAREHOLDERS" means each of the Investor Shareholders and
each Person receiving Common Stock from an Investor Shareholder as a result of a
Permitted Transfer.
"PERMITTED TRANSFER" means a Transfer by (a) any Investor
Shareholder to (i) any partner of or member in the Investor Shareholders in
connection with a distribution to such partner or member of Investor Shares or
(ii) any Affiliate of the Investor Shareholders, or (b) any Existing Shareholder
to any Affiliate of the Existing Shareholders, in each case (a) or (b), who
agrees to be bound by the terms of this Agreement if, as a result of such
Transfer, such partner or member or Affiliate would own at least 5% of the Total
Voting Power.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, governmental
authority or other entity.
"PLACEMENT PURCHASE AGREEMENT" has the meaning assigned to such term
in the recitals.
"PLACEMENT SHARES" has the meaning assigned to such term in the
recitals.
"PURCHASE AGREEMENTS" has the meaning assigned to such term in the
recitals.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and the Investor
Shareholders.
"SEC" means the U.S. Securities and Exchange Commission or any other
federal agency then administering the Securities Act or the Exchange Act and
other federal securities laws.
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"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SHARES" has the meaning assigned to such term in the recitals.
"SUBSIDIARY" means, with respect to a party, any corporation,
partnership, trust, limited liability company or other entity in which such
party (and/or one or more Subsidiaries of such party) holds stock or other
ownership interests representing (a) more that 50% of the voting power of all
outstanding stock or ownership interests of such entity, (b) the right to
receive more than 50% of the net assets of such entity available for
distribution to the holders of outstanding stock or ownership interests upon a
liquidation or dissolution of such entity or (c) a general or managing
partnership interest or similar position in such entity.
"13D GROUP" means any "group" (within the meaning of SECTION 13(d)
of the Exchange Act) formed for the purpose of acquiring, holding, voting or
disposing of Voting Securities.
"TERM" means the period commencing on the Closing Date and ending on
the earlier to occur of (i) the Agreement Termination Date or (ii) the date on
which this Agreement shall be terminated by the parties hereto pursuant to
Section 4.6; provided, that (a) with respect to Section 3.1 only, "Term" shall
mean the period commencing on the date hereof and ending on the first
anniversary of the date hereof and (b) certain obligations set forth herein
shall survive the Term pursuant to Section 4.1 hereof.
"TOTAL VOTING POWER" means the aggregate number of votes which may
be cast in an election of Directors or other members of the governing body of
the Company by holders of Voting Securities in respect of Voting Securities.
"TRANSACTION" has the meaning assigned to such term in the recitals.
"TRANSFER" means, directly or indirectly, to sell, transfer, assign,
pledge, encumber, hypothecate or similarly dispose of, either voluntarily or
involuntarily, or to enter into any contract, option, short sale, hedge,
derivative transaction (including a registered hedge) or other arrangement or
understanding with respect to the sale, transfer, assignment, pledge,
encumbrance, hypothecation, or similar disposition of any shares of Equity
Securities beneficially owned by a Person or any interest in any shares of
Equity Securities beneficially owned by a Person.
"VOTING SECURITIES" means, at any time, shares of any class of
Equity Securities of the Company which are then entitled to vote in the election
of Directors.
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ARTICLE II
CORPORATE GOVERNANCE AND INFORMATION RIGHTS
2.1 BOARD REPRESENTATION. (a) At the Closing, the Company shall
appoint two Directors designated by the Investor Shareholders for election by
the Board and obtain resignations from two of the Directors that are not
Independent Directors serving on the Board such that the Board shall consist
initially of seven Directors. During the Term of this Agreement, (i) the
Investor Shareholders, acting as a group (by majority vote based on number of
shares of Common Stock held), shall have the right to nominate for election to
the Board two Directors to the Board for so long as the Investor Shareholder
Group collectively owns of record a number of shares of Common Stock equal to at
least 10% of the then outstanding Common Stock (the "INVESTOR DIRECTORS"), (ii)
the Existing Shareholders, acting as a group (by majority vote based on number
of shares of Common Stock held), shall have the right to nominate for election
to the Board two Directors to the Board for so long as the Existing Shareholder
Group collectively owns of record a number OF shares of Common Stock equal to at
least 10% of the then outstanding Common Stock (the "EXISTING SHAREHOLDER
DIRECTORS") and (iii) the Investor Directors and the Existing Shareholder
Directors shall jointly nominate three Independent Directors. In addition, in
the event that the Board (including at least one Investor Director and one
Existing Shareholder Director) determines to increase the number of directors
above seven, such additional directors shall be Independent Directors and shall
be jointly nominated by the Investor Directors and the Existing Shareholder
Directors. Any nomination for the replacement of (x) a Investor Director prior
to the expiration of his or her respective term shall be made by the remaining
Investor Director or, if no Investor Directors remain, by the Investor
Shareholders, (y) an Existing Shareholder Director prior to the expiration of
his or her respective term shall be made by the remaining Existing Shareholder
Director or, if no Existing Shareholder Directors remain, by the Existing
Shareholders or (z) an Independent Director prior to the expiration of his or
her respective term shall be made jointly by the Investor Directors and the
Existing Shareholder Directors; provided, however, that the current independent
Directors shall be entitled to serve through the earlier to occur of their
resignation or the expiration of their respective current terms and; provided,
further that to the extent that the Board or any member thereof reasonably
believes that it would be contrary to his, her or its fiduciary duties to the
Company and its shareholders to nominate any Investor Director or Existing
Shareholder Director to the Board or any Committee thereof, the Board, or any
member thereof, may refuse to make such nomination and such refusal shall not be
deemed a breach of this Agreement.
(b) Subject to Section 2.1(a), the Company, the Investor
Shareholders and the Existing Shareholders at all times shall take such action
as may be reasonably required under applicable law to cause the Investor
Shareholders' designee(s) and the Existing Shareholders' designee(s) to be
elected to the Board. Furthermore, the Company hereby agrees, subject to SECTION
2.1(A), to (i) include each of the Director designees of the Investor
Shareholders and the Existing Shareholders (which are up for election in
accordance with the Bylaws of the Company) on each slate of nominees for
election to the Board proposed by the Company and/or the Board (or any Committee
thereof), (ii) recommend the election of the Director designees of the Investor
Shareholders and the Existing Shareholders (which are up for election in
accordance with the Bylaws of the Company) to the shareholders of the Company,
and (iii) without limiting the foregoing, to otherwise use commercially
reasonable efforts to cause the Director designees of the Investor Shareholders
and the Existing Shareholders (which are up for election in accordance with the
Bylaws of the Company) to be elected to the Board.
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(c) During the Term of this Agreement, one of the two Investor
Directors shall be appointed as a member of the Compensation Committee of the
Board and one of the Investor Directors shall have the right to attend all Audit
Committee meetings; PROVIDED, HOWEVER, that in the event that the Company is
listed on The Nasdaq Stock Market (or such other national securities exchange on
which the Common Stock is then listed or quoted for trading), then each Investor
Director shall be qualified under the rules and regulations of the SEC and the
Nasdaq Stock Market (or such other national securities exchange on which the
Common Stock is then listed or quoted for trading) and the Company's guidelines
(applied on a reasonable and uniform basis consistent with past practice) as in
effect from time to time to serve as a member of the Compensation Committee.
(d) During the Term of this Agreement, none of the following
actions shall take place without the consent of at least one of the Investor
Directors:
(i) the issuance, redemption or purchase of equity or
debt of the Company (including the issuance of warrants and/or the
expansion of the Company's current stock option plan), excluding (x)
issuances of equity or debt securities and the incurrence of debt in
connection with Permitted Acquisitions (defined below), (y) the
incurrence of debt in connection with inventory, equipment or lease
financing in the ordinary course of business in any fiscal year in
an amount not to exceed 5% of the Company's gross revenue calculated
in accordance with GAAP, consistently applied (as set forth in
financial statements filed with the SEC) for the prior fiscal year
together with all then outstanding inventory, equipment or lease
financings, and (z) debt incurred under lines of credit or revolving
credit facilities or any renewals, extensions, substitutions,
refundings, refinancings or replacements of such indebtedness in an
amount not to exceed the greater of the amount outstanding on the
date hereof and 5% of the Company's gross revenue calculated in
accordance with GAAP, consistently applied (as set forth in
financial statements filed with the SEC) for the prior fiscal year.
(ii) the issuance of any omnibus stock plan which would
permit the issuance to employees, officers or directors of the
Company of options for Company stock; provided however, that such
consent shall not be required for the approval of an omnibus stock
plan of up to 18% of the number of shares of Common Stock
outstanding on the Closing Date (after giving effect to the issuance
of Common Stock pursuant to the Purchase Agreements), so long as
such plan provides that (i) no more than 20% of the shares of Common
Stock available for grant under such plan shall be granted in any
one calendar year, (ii) no more than 3.5% of the shares of Common
Stock available for grant under such plan shall be granted to any
one individual in any one calendar year, and (iii) no more than 50%
of the shares of Common Stock granted under such plan in any given
year shall be granted to the officers and directors of the Company
or any of their respective Affiliates (excluding officers and
directors of the Company who derive at least 50% of their cash
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compensation from the Company as sales commission). (As of the date
hereof, the persons set forth on Schedule III derive at least 50% of
their cash compensation from the Company as sales commission); or
(iii) the creation of any new class of securities; or
(iv) any Affiliate Transaction, other than Affiliate
Transactions entered into prior to the date hereof and set forth on
the Disclosure Schedules to the Investor Purchase Agreement on the
terms in effect on the date hereof (including the repayment of debt
in accordance with its terms in effect on the date hereof or accrued
compensation as of the date hereof owed to Affiliates); or
(v) changes to the certificate of incorporation or
bylaws of the Company or the formation of new committees; or
(vi) the entering into a merger, reorganization or sale
of the Company or any of it Subsidiaries or the disposal of any
significant portion of their respective assets, or the acquiring of
any significant business or assets from another Person (whether by
merger, asset or stock purchase or otherwise), other than mergers,
acquisitions or other business combinations involving the
acquisition of a business offering the same or complimentary
services or products to those offered by the Company, provided that
the aggregate purchase price for all such businesses in any 12-month
period does not exceed 5% of the Company's gross revenue (calculated
in accordance with GAAP, consistently applied, (as set forth in
financial statements filed with the SEC) for the prior fiscal year
("Permitted Acquisitions"); or
(vii) material changes to the business lines of the
Company as in effect on the date hereof.
(e) During the Term of this Agreement, (i) the Investor
Shareholders agree to vote all shares of Common Stock then owned by such
Investor Shareholder so as to elect to the Board the Investor Directors, the
Existing Shareholder Directors and the Independent Directors during the Term of
this Agreement pursuant to SECTION 2.1(A) hereof and (ii) each Existing
Shareholder agrees to vote all shares of Common Stock then owned by such
Existing Shareholder so as to elect to the Board the Existing Shareholder
Directors, the Investor Directors and the Independent Directors during the Term
of this Agreement pursuant to SECTION 2.1(A) hereof. In the event that the
Board, acting in good faith in the exercise of its fiduciary duty, determines
not to recommend to the Company's stockholders to elect as a director a designee
of the Investor Shareholders or a designee of the Existing Shareholders, if the
Investor Shareholders or the Existing Shareholders determine to solicit proxies
from the Company's stockholders to vote for such nominee, the Company shall
reimburse the Investor Shareholders Group or the Existing Shareholder Group, as
the case may be, for their reasonable cost incurred in connection with the
solicitation of such proxies.
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(f) If one or more Investor Directors serve as members of the
Board at a time when the Investor Shareholders no longer have the right to
designate a Director, promptly following a written request by a majority of the
Board, the Investor Shareholders shall immediately cause the Investor
Director(s) to resign, as so requested.
(g) If one or more Existing Shareholder Directors serve as
members of the Board at a time when the Existing Shareholders no longer have the
right to designate a Director, promptly following a written request by a
majority of the Board, the Existing Shareholders shall immediately cause the
Existing Shareholder Director(s) to resign, as so requested.
2.2 INVESTOR SHAREHOLDER DIRECTOR FEES AND EXPENSES. The Company
shall pay each Investor Director customary fees in accordance with the Company's
director compensation policy as paid to other non-employee Directors, as in
effect from time to time. The Company shall also reimburse each Investor
Director for its reasonable out-of-pocket expenses incurred for the purpose of
attending meetings of the Board or the Compensation Committee or the Audit
Committee thereof (including as a designated attendee thereof pursuant hereto)
in accordance with the Company's current reimbursement policy.
ARTICLE III
STANDSTILL AND TRANSFERS
3.1 STANDSTILL AGREEMENT.
(a) For a period of twelve (12) months from the date hereof,
except as provided in this SECTION 3.1, the Investor Shareholders will not
directly or indirectly, nor will they authorize or direct any of their officers,
employees, agents and other representatives to, in each case, unless
specifically requested to do so in writing in advance by a resolution of the
Board or a Committee:
(i) offer, seek or propose to acquire, ownership of any
assets or businesses of the Company or any of its Subsidiaries
having a fair market value in excess of 5% of the fair market value
of all of the Company's and its Subsidiaries' assets, or any rights
or options to acquire any such ownership (including from a third
party);
(ii) acquire or agree, offer, seek or propose to
acquire, or cause to be acquired, beneficial ownership of, or
participate in an acquisition of, any securities of the Company or
any of its Subsidiaries, or any options, warrants or other rights
(including, without limitation, any convertible or exchangeable
securities) to acquire any such securities (except pursuant to a
stock dividend, stock split, reclassification, recapitalization or
other similar event by the Company;
(iii) make, or in any way participate in, any
"solicitation" of "proxies" (as such terms are used in the proxy
rules of the SEC) with respect to the voting of any securities of
the Company or any of its Subsidiaries, except as contemplated by
Section 2.2(e) hereof;
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(iv) deposit any securities of the Company or any of its
Subsidiaries in a voting trust or subject any securities of the
Company to any arrangement or agreement with respect to the voting
of such securities or enter into any other agreement having similar
effect;
(v) form, join, or in any way become a member of a 13D
Group with any other Person (other than its Affiliates or other
Investor Shareholders) with respect to any voting securities of the
Company or any of its Subsidiaries;
(vi) seek to propose or propose, whether alone or in
concert with others, any tender offer, exchange offer, merger,
business combination, restructuring, liquidation, dissolution,
recapitalization or similar transaction involving the Company or any
of its Subsidiaries;
(vii) nominate any person as a Director of the Company
who is not nominated by the then incumbent Directors or seek the
removal of any person as a Director of the Company, or propose any
matter to be voted upon by the shareholders of the Company or seek
to call a meeting of the shareholders of the Company; provided that
the Investor Shareholders may designate or nominate Directors and
seek the removal of such Directors, in accordance with SECTION 2.1;
or
(viii) take any action with respect to or publicly
announce or disclose any intention, plan or arrangement inconsistent
with the foregoing.
(b) Nothing contained in SECTION 3.1 shall be deemed in any
way to prohibit or limit (i) the activities of the Investor Directors
discharging their fiduciary duties as Directors or (ii) any transactions in the
ordinary course of business and on arm's length terms between the Company and
its Subsidiaries, on the one hand, and Investor Shareholders and their
Affiliates, on the other hand, which transactions, in the case of the Company,
shall have been approved by a majority of the Directors who are not Investor
Directors.
(c) If any Person shall commence and not withdraw a bona fide
unsolicited tender offer or exchange offer that if successful would result in a
Change of Control (an "OFFER"), the Standstill Period shall immediately
terminate unless within ten (10) Business Days of the announcement of such
Offer, the independent directors shall have publicly recommended that the Offer
not be accepted.
3.2 TRANSFER RESTRICTIONS.
(a) During the Term of this Agreement, (i) each of the
Investor Shareholders and the Existing Shareholders shall not Transfer any of
the Investor Shares or the Existing Shareholder Shares, as the case may be, to a
Competitor (ii) the Investor Shareholders shall use their commercially
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reasonable efforts to cause the members of the Investor Shareholder Group to not
Transfer any of the Investor Shares to a Competitor, and (iii) the Existing
Shareholders shall use their commercially reasonable efforts to cause the
Existing Shareholder Group to not Transfer any of the Existing Shareholder
Shares to a Competitor.
(b) None of the Investor Shareholders or the Existing
Shareholders shall effect any Transfer in violation of any applicable law or if
such Transfer would affect the availability of the exemption from the
registration requirements under the Securities Act relied upon by the Company in
connection with the issuance of the Investor Shares or the Existing Shareholder
Shares pursuant to the Purchase Agreements.
(c) Promptly following any Transfer or upon the reasonable
request of the Company or any Director, the Investor Shareholders and the
Existing Shareholders shall promptly notify the Company of the number of
Investor Shares or Existing Shareholder Shares which such Person own of record
or has the right to vote.
3.3 RIGHT OF FIRST REFUSAL TO INVESTOR SHAREHOLDERS. During the Term
of this Agreement, the Company hereby grants to each member of the Investor
Shareholder Group the right of first refusal to purchase a pro rata share of
Future Securities (as defined in this SECTION 3.3) which the Company may, from
time to time, propose to sell and issue. A member of the Investor Shareholder
Group's pro rata share, for purposes of this right of first refusal, is the
ratio of the number of shares of Common Stock owned by such Person immediately
prior to the issuance of Future Securities to the total number of shares of
Common Stock outstanding immediately prior to the issuance of Future Securities.
This right of first refusal shall be subject to the following provisions:
(a) "FUTURE SECURITIES" shall mean any issuance of Capital
Stock in a financing transaction (other than an underwritten public offering), a
purpose of which is raising capital, at a price which is less than ninety
percent (90%) of the 10-day average closing price of Common Stock as reported by
the Bloomberg Professional Service (x) established on the date on which Notice
(as defined below) is delivered to members of the Investor Shareholder Group, if
the issuance is to be sold at a price which has been established prior to the
date of such Notice, or (y) on the day immediately prior to the closing date of
such transaction if the price has not been established prior to Notice.
Notwithstanding anything to the contrary, the term "FUTURE SECURITIES" does not
include:
(i) shares of Common Stock issued or issuable to
officers, directors and employees of, or consultants to, the Company
pursuant to stock grants, option plans, purchase plans or other
employee stock incentive programs or arrangements approved by the
Board and, if required, an Investor Director pursuant to Section
2.1(d) hereof and the shareholders of the Company;
(ii) shares of Common Stock issued upon the exercise or
conversion of options or convertible securities of the Company
outstanding as of the date of this Agreement, as set forth on
SCHEDULE 3.3(A) hereto;
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(iii) shares of Capital Stock issued or issuable to
banks, equipment lessors or other financial institutions pursuant to
a commercial leasing or secured debt financing transaction in the
ordinary course of business approved by the Board and, if required,
an Investor Director pursuant to Section 2.1(d) hereof; and
(iv) shares of Capital Stock of the Company which are
issued or issuable pursuant to and in connection with a strategic
transaction or an acquisition or other business combination approved
by a the Board and, if required, an Investor Director pursuant to
Section 2.1(d) hereof.
(b) In the event the Company proposes to undertake an issuance
of Future Securities, it shall give each member of the Investor Shareholder
Group written notice of its intention, describing in detail the type of Future
Securities, identities of purchasers, if known, and their price and the terms
upon which the Company proposes to issue the same ("Notice"). Each member of the
Investor Shareholder Group shall have the right to request such additional
information about the Company and the proposed issuance of Future Securities as
it reasonably determines is necessary to make an informal investment decision,
subject to the execution of a confidentiality agreement in form satisfactory to
the Company, if requested by the Company. Each member of the Investor
Shareholder Group shall have ten (10) days after all of such additional
information is received to agree to purchase such member's pro rata share of
such Future Securities for the price and upon the terms specified in the notice
by giving written notice to the Company and stating therein the quantity of
Future Securities to be purchased and may condition its purchase upon the
Company otherwise completing the remaining portion of the proposed issuance of
Future Securities.
(c) In the event any member of the Investor Shareholder Group
fails to exercise fully the right of first refusal within said ten (10) day
period and after the expiration of the additional ten (10) day period for the
exercise of the over-allotment provisions of this SECTION 3.3, the Company shall
have ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of Future Securities covered thereby shall be closed, if at all,
within ninety (90) days from the date of said agreement) to sell the Future
Securities respecting which the member of the Investor Shareholder Group's right
of first refusal option set forth in this SECTION 3.3 was not exercised, at a
price and upon terms no more favorable to the purchasers thereof than specified
in the Company's notice to members of the Investor Shareholder Group pursuant to
SECTION 3.3(B). In the event the Company has not sold within such ninety (90)
day period, the Company shall not thereafter issue or sell any Future
Securities, without first again offering such securities to the members of the
Investor Shareholder Group in the manner provided in SECTION 3.3(B) above.
(d) The right of first refusal granted under this SECTION 3.3
shall expire upon, and shall not be applicable to the closing of a firm
underwritten public offering of Common Stock with gross proceeds to the Company
in excess of $10 million.
(e) The right of first refusal set forth in this SECTION 3.3
may not be assigned or transferred, except to a Permitted Transferee.
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3.4 COMPANY'S RIGHT OF FIRST REFUSAL.
(a) If any member of the Investor Shareholder Group or the
Existing Shareholder Group proposes to Transfer any Common Stock to any Person,
other than a Permitted Transfer or a Transfer pursuant to a Registration
Statement (as such term is defined in the Registration Rights Agreement) or any
other "open market" sale made through a broker, then such Person shall first
give written notice to the Company (such written notice being referred to as the
"TRANSFER NOTICE") that (i) sets forth the number of shares of Common Stock
proposed to be sold (the "OFFERED SHARES"), (ii) sets forth the name and address
of the proposed purchaser (the "PROPOSED Purchaser")), (iii) sets forth the
price and other terms of the proposed sale, and (iv) includes a copy of the bona
fide written offer received by such Person from the Proposed Purchaser.
(b) The Transfer Notice shall constitute an offer (the
"OFFER") by such Investor Shareholder(s) or Existing Shareholder(s) to sell the
Offered Shares to the Company or its designee (the "OPTION HOLDER"). If the
proposed sale is for other than cash, then the price per share shall be deemed
to be the fair market value per share, as reasonably determined by the Board, of
the consideration offered by the Proposed Purchaser.
(c) The Option Holder shall have ten (10) Business days from
the date they receive the Offer in which to agree to purchase all of the Offered
Shares by so notifying the selling Investor Shareholder(s) or Existing
Shareholder(s), as the case may be, in writing. Such notice and election shall
be irrevocable. In accordance with the provisions of SECTION 3.4, if, pursuant
to its written notice the Option Holder does not elect to purchase all of the
Offered Shares, then the offering shareholder may immediately consummate the
sale of the Offered Shares to the Proposed Purchaser on terms no less favorable
to the Investor Shareholders or Existing Shareholders, as the case may be, than
as set forth in the Transfer Notice.
(d) If the Offer is accepted with respect to all the Offered
Shares in accordance with SECTION 3.4, the closing of the purchase and sale of
the Offered Shares shall be held at the principal office of the Company on the
date and at the time set forth in the written notice given by the Option Holder
to the selling Investor Shareholder(s) or Existing Shareholder(s), but in no
event later than ten (10) days after such notice, if the Option Holder elects to
purchase the Offered Shares. The Option Holder shall deliver to the selling
Investor Shareholder(s) or Existing Shareholder(s) at the closing the full
purchase price payable for the Offered Shares by means of a cashier's check,
certified check, or wire transfer and documents containing such acknowledgments,
representations, and agreements that counsel for the Company may reasonably
require in order for the transfer to comply with applicable federal and state
securities laws. The selling Investor Shareholder(s) or Existing Shareholder(s)
shall deliver to the purchasers certificates representing the Offered Shares, if
any, duly endorsed in blank for transfer or with duly executed blank stock
powers attached, together with such other documents as may be necessary or
appropriate, in the reasonable opinion of counsel for the purchasers, to
effectuate the transfer to the Option Holder.
(e) If the Offer is not accepted by the Option Holder within
ten (10) Business Days of the date that the Transfer Notice is delivered to the
Company pursuant to SECTION 3.4(B), the selling Investor Shareholder(s) or
Existing Shareholder(s) shall be free to sell all, but not less than all, of the
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Offered Shares, PROVIDED, HOWEVER, that (i) such sale by the selling Investor
Shareholder(s) or Existing Shareholder(s) must be made to the Proposed Purchaser
on terms of the proposed disposition that are no less favorable to the Investor
Shareholder(s) or Existing Shareholder(s), as the case may be, described in the
Transfer Notice, (ii) such sale must be consummated within thirty (30) days
after the date that the Transfer Notice is delivered to the Company pursuant to
SECTION 3.4(B), and (iii) such sale shall comply with all applicable federal and
state securities laws. If the Offered Shares are not so sold to the Proposed
Purchaser prior to the expiration of such thirty (30) day period on terms no
more favorable to the selling Investor Shareholder(s) or Existing
Shareholder(s), the Offered Shares shall again be subject to the provisions of
this Agreement as though the Offer had not previously been made.
(f) The right of first refusal granted under this SECTION 3.4
shall expire upon, and shall not be applicable to the closing of a firm
underwritten public offering of Common Stock with gross proceeds to the Company
in excess of $10 million.
(g) The right of first refusal set forth in this SECTION 3.4
may not be assigned or transferred.
3.5 SECURITIES LAW COMPLIANCE; REPORTING OBLIGATIONS. Each Investor
Shareholder and Existing Shareholder covenants to comply with (a) all applicable
restrictions on transfer set forth in the Exchange Act, the Securities Act, and
all rules promulgated thereunder, including but not limited to Rule 144
promulgated under the Securities Act, and (b) the applicable reporting
obligations under Section 13 of the Exchange Act and the rules promulgated
thereunder. In addition, each Investor Shareholder and Existing Shareholder
covenants that it will deliver to the Company a copy of all beneficial ownership
reports that are required to be filed pursuant to Section 13 of the Exchange Act
and the rules promulgated thereunder in accordance with the notice provisions
herein, within three (3) Business days of the date of the filing of such report
with the SEC.
ARTICLE IV
MISCELLANEOUS
4.1 TERMINATION.
(a) This Agreement shall terminate, except for this Article IV
which shall survive such termination, upon the earlier to occur of the Agreement
Termination Date or upon the written consent of the parties hereto in such
manner required for amendments hereto as provided in SECTION 4.6.
(b) The termination of this Agreement will not relieve any
party for any liability arising from a breach of representation, warranty,
covenant or other agreement occurring prior to such termination.
4.2 EXPENSES. Except as otherwise provided in the Investor Purchase
Agreement, all expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
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4.3 ASSIGNMENT; BENEFITS. Unless expressly permitted pursuant to
this Agreement, neither the Investor Shareholders nor the Existing Shareholders
may assign their rights hereunder without the consent of the Company and, in the
event of a proposed assignment by an Existing Shareholder, an Investor Director.
4.4 ENTIRE AGREEMENT. This Agreement (including any schedules or
exhibits hereto), together with the Investor Purchase Agreement and the
Registration Rights Agreement constitutes the full and entire understanding and
agreement among the parties with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or representations
by or among the parties, written or oral, that may have related to the subject
matter hereof in any way.
4.5 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby;
provided that the essential terms and conditions of this Agreement for the
parties remain valid, binding and enforceable; PROVIDED, FURTHER, that the
economic and legal substance of the transactions contemplated by this Agreement
is not affected in any manner materially adverse to any party. In event of any
such determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
4.6 AMENDMENTS AND WAIVERS. This Agreement may not be amended,
modified or supplemented without the written consent of the Company the Investor
Shareholders, and the Existing Shareholders and waivers or consents to
departures from the provisions hereof may be given in writing by the party
granting such waiver, consent or departure.
4.7 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing and duly given when delivered by
hand or mailed by express, registered or certified mail, or any courier
guaranteeing overnight delivery (a) if to an Investor Shareholder, at the most
current address given by the Investor Shareholder in accordance with the
provisions of this SECTION 4.7, which address initially is the address set forth
in the Investor Purchase Agreement with respect to the Investor Shareholder,
with a copy to ▇▇▇▇ ▇▇▇▇▇▇▇, P.C., 1350 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, attention ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.; and (b) if to the
Company or the Existing Shareholders, to the attention of its General Counsel,
initially at the Company's address set forth in the Investor Purchase Agreement,
and thereafter at such other address of which notice is given in accordance with
the provisions of this SECTION 4.7, with a copy to Blank Rome LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, attention ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
-15-
4.8 GOVERNING LAW. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of New York,
without giving effect to any choice of law or conflict of laws rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.
4.9 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. No proceeding
related to this Agreement or the transactions contemplated hereby may be
commenced, prosecuted or continued in any court other than the courts of the
State of New York located in the City and County of New York or in the United
States District Court for the Southern District of New York, which courts shall
have jurisdiction over the adjudication of such matters, and the Company, the
Existing Shareholders and the Investor Shareholders hereby irrevocably and
unconditionally consent to the jurisdiction of such courts and personal service
with respect thereto, waive any objection to the laying of venue of any such
litigation in such courts and agree not to plead or claim that such litigation
brought in any courts has been brought in an inconvenient forum. Each of the
Company, the Existing Shareholders and the Investor Shareholders hereby waive
all right to trial by jury in any proceeding (whether based upon contract, tort
or otherwise) in any way arising out of or relating to this Agreement. Each of
the Company, the Existing Shareholders and the Investor Shareholders agree that
a final judgment in any such proceeding brought in any such court shall be
conclusive and binding upon the Company and may be enforced in any other courts
in the jurisdiction of which the Company are or may be subject, by suit upon
such judgment.
4.10 COUNTERPARTS. This Agreement and any amendments, modifications
or supplements hereto may be executed in any number of counterparts, each of
which when so executed shall be deemed an original, and all of which together
shall constitute one and the same agreement.
4.11 FURTHER ASSURANCES. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments, and
documents as any other party hereto reasonably may request in order to carry out
the provisions of this Agreement and the consummation of the transactions
contemplated hereby.
4.12 RECAPITALIZATION, ETC. In the event that any capital stock or
other securities are issued in respect of, in exchange for, or in substitution
of, any shares of Common Stock by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
shareholders or combination of the shares of Common Stock or any other change in
capital structure of the Company, appropriate adjustments shall be made with
respect to the relevant provisions of this Agreement so as to fairly and
equitably preserve, as far as practicable, the original rights and obligations
of the parties hereto under this Agreement.
4.13 REMEDIES FOR BREACH; SPECIFIC PERFORMANCE. In the event of a
breach by any party to this Agreement of its obligations under this Agreement,
the party injured by such breach, in addition to being entitled to exercise all
rights granted by law, including recovery of damages and costs (including
reasonable attorneys' fees), shall be entitled to specific performance of its
-16-
rights under this Agreement, it being agreed that the remedy at law, including
monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense in any action for specific
performance that a remedy at law would be adequate is waived. It is further
agreed that injunctive relief shall be available to the Investor Shareholders
and the Existing Shareholders for breach of Section 2.1(e) above, it being
agreed that the remedy at law, including monetary damages, for breach of any
such provision will be inadequate compensation for any loss and that any defense
in any action for injunctive relief that a remedy at law would be adequate is
waived.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this
Shareholder Agreement as of the date first set forth above.
▇▇▇▇▇▇ + CIOCIA, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: Vice President
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND, LTD.
By: Wynnefield Capital Management, Inc.,
its Investment Manager
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: President
WYNNEFIELD PARTNERS SMALL CAP VALUE, L.P.
By: Wynnefield Capital Management, LLC,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Co-Managing Member
WYNNEFIELD PARTNERS SMALL CAP VALUE, L.P. I
By: Wynnefield Capital Management, LLC,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Co-Managing Member
WEBFINANCIAL CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title:
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EXISTING SHAREHOLDERS:
Prime Partners, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
Prime Partners II, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Member and Manager
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SCHEDULE I
SCHEDULE OF INVESTOR SHAREHOLDERS
Wynnefield Small Cap Value Offshore Fund, Ltd.
Wynnefield Partners Small Cap Value, L.P.
Wynnefield Partners Small Cap Value, L.P. I
WebFinancial Corporation
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SCHEDULE II
SCHEDULE OF EXISTING SHAREHOLDERS
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
PRIME PARTNERS, INC.
PRIME PARTNERS II, LLC
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SCHEDULE III
SCHEDULE OF OFFICERS AND DIRECTORS WHO DERIVE AT LEAST 50% OF THEIR CASH
COMPENSATION AS SALES COMMISSION AS OF THE DATE HEREOF
▇▇▇▇▇ ▇▇▇▇▇▇
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