SHAREHOLDER AGREEMENT Dated as of August 20, 2007
Dated
as
of August 20, 2007
TABLE
OF CONTENTS
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Page
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ARTICLE
I
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DEFINITIONS
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1
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1.1
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Certain
Defined Terms
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1
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ARTICLE
II
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CORPORATE
GOVERNANCE AND INFORMATION RIGHTS
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6
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2.1
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Board
Representation
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6
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2.2
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Investor
Shareholder Director Fees and Expenses
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9
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ARTICLE
III
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STANDSTILL
AND TRANSFERS
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9
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3.1
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Standstill
Agreement.
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9
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3.2
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Transfer
Restrictions.
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10
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3.3
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Right
of First Refusal to Investor Shareholders
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11
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3.4
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Company’s
Right of First Refusal.
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13
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3.5
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Securities
Law Compliance; Reporting Obligations
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14
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ARTICLE
IV
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MISCELLANEOUS
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14
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4.1
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Termination.
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14
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4.2
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Expenses
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15
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4.3
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Assignment;
Benefits
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15
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4.4
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Entire
Agreement
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15
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4.5
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Severability
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15
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4.6
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Amendments
and Waivers
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15
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4.7
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Notices
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15
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4.8
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Governing
Law
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16
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4.9
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Submission
to Jurisdiction; Waiver of Jury Trial
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16
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4.10
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Counterparts
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16
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4.11
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Further
Assurances
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16
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4.12
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Recapitalization,
etc
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16
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4.13
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Remedies
for Breach; Specific Performance
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16
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-i-
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
-2-
(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.
-3-
“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.
-4-
“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.
-5-
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.
-6-
(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
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
-7-
(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.
-8-
(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;
-9-
(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 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.
-10-
(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;
-11-
(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.
-12-
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.
-13-
(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 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.
-14-
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.
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 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]
-16-
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:
|
||||
-18-
|
EXISTING SHAREHOLDERS:
|
||
|
Prime
Partners, Inc.
|
||
|
By:
|
/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
|
|
|
Name:
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
|
|
|
Title:
|
Vice
President
|
|
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇
|
|
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
|
/s/
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
|
|
▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇
|
|
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇
|
|
Prime
Partners II, LLC
|
|
|
By:
|
/s/
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
|
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Member and Manager
|
|
-19-
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
|
-20-
SCHEDULE
II
SCHEDULE
OF EXISTING SHAREHOLDERS
▇▇▇▇▇▇▇
▇. ▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇
▇.
▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇
PRIME
PARTNERS, INC.
PRIME
PARTNERS II, LLC
-21-
SCHEDULE
III
SCHEDULE
OF OFFICERS AND DIRECTORS WHO DERIVE AT LEAST 50% OF
THEIR
CASH COMPENSATION AS SALES COMMISSION AS OF THE DATE
HEREOF
▇▇▇▇▇
▇▇▇▇▇▇
-22-