_______________________________________________________________________________
_______________________________
MRS. FIELDS' HOLDING COMPANY, INC.
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STOCKHOLDERS' AGREEMENT
among
MRS. FIELDS' HOLDING COMPANY, INC.
and
ITS STOCKHOLDERS
________________________________
Dated as of June , 1998
________________________________
________________________________________________________________________________
STOCKHOLDERS' AGREEMENT
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STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of March , 1998,
among Mrs. Fields' Holding Company, Inc., a Delaware corporation (the
"Company"), Capricorn Investors II, L.P., a Delaware limited partnership
("Capricorn"), Harvard Private Capital Holdings, Inc., a Massachusetts
corporation ("Harvard"), the individuals identified on the signature pages
hereto as "Management Investors", the individuals identified on the signature
pages hereto as the "Director Investors", the individuals identified on the
signature pages hereto as the "Other Investors" and such other persons to become
parties to this Agreement as described herein.
W I T N E S S E T H:
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WHEREAS, the parties hereto deem it in their best interests and in the best
interests of the Company to provide consistent and uniform management for the
Company and desire to enter into this Agreement in order to effectuate that
purpose and to set forth their respective rights and obligations in connection
with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the shares of Common Stock, and to
provide for certain rights and obligations in respect thereto as hereinafter
provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the following
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terms shall have the following respective meanings:
"Affiliate" means as to any Person (a) any Person which directly or
indirectly controls, is controlled by, or is under common control with such
Person, (b) any Person who is a director, officer, partner or principal of such
Person or of any Person which directly or indirectly controls, is controlled by,
or is under common control with such Person, and (c) any individual who is a
member of the immediate family of any Person described in clause (a) or clause
(b) above. For purposes of this definition, "control" of a Person shall mean
the power, direct or indirect, (i) to vote or direct the voting of 5% or more of
the Voting Stock of such Person or (ii) to direct or cause the direction of the
management and policies of such Person whether by ownership of Capital Stock, by
contract or otherwise.
"Agreement" means this Agreement as in effect on the date hereof and as
hereafter from time to time amended, modified or supplemented in accordance with
the terms hereof.
"Board of Directors" means the Board of Directors of the Company as from
time to time hereafter constituted.
"By-Laws" means the By-Laws of the Company in effect on the date hereof and
as hereafter further amended in accordance with the terms hereof and pursuant to
applicable law.
"Call Notice" has the meaning specified in Section 6.1.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock of any Person, including, without limitation, shares of
preferred or preference stock, (ii) all partnership interests (whether general
or limited) in any Person which is a partnership, (iii) all membership interests
or limited liability company interests in any limited liability company, and
(iv) all equity or ownership interests in any Person of any other type.
"Cause" means, when used in connection with the termination of a Management
Investor's employment with the Company or any of its Subsidiaries, (i) the
refusal of such Management Investor to implement or adhere to lawful policies or
directives of the Board of Directors consistent with such Management Investor's
employment agreement with the Company; (ii) such Management Investor's
conviction of or entrance of a plea of nolo contendere to (A) a felony, (B) to
any other crime, which other crime is punishable by incarceration for a period
of one year or longer, or (C) other conduct of a criminal nature that may have
an adverse impact on the Company's reputation and standing in the community;
(iii) conduct that is in violation of such Management Investor's common law duty
of loyalty to the Company; (iv) fraudulent conduct by such Management Investor
in connection with the business affairs of the Company, regardless of whether
said conduct is designed to defraud the Company or others; (v) theft,
embezzlement, or other criminal misappropriation of funds by such Management
Investor, whether from the Company or any other person; or (vi) any breach of or
such Management Investor's failure to fulfill any of such Management Investor's
obligations, covenants, agreements, or duties under his employment agreement
with the Company; provided, however, that "Cause" pursuant
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to clause (i) or (vi) shall not be deemed to exist unless the Company has given
such Management Investor written notice thereof specifying in reasonable detail
the facts and circumstances alleged to constitute "cause", and 30 days after
such notice such conduct or circumstances has not entirely ceased or been
entirely remedied. Any determination of Cause shall be made by the Board of
Directors, which determination shall be final and binding on a Management
Investor.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as in effect on the date hereof and as hereafter from time to time
amended, modified, supplemented or restated in accordance with the terms hereof
and pursuant to applicable law.
"Commission" means the Securities and Exchange Commission and any successor
commission or agency having similar powers.
"Date of Termination" means, with respect to any Management Investor, the
date such Management Investor ceases to be an employee of the Company or any of
its Subsidiaries or, with respect to any Director Investor, the date such
Director Investor ceases to be a director of the Company.
"Director Investor" means any director of the Company who is not a
Management Investor who purchases Common Stock, or receives options to purchase
Common Stock, from the Company, and each Permitted Transferee of any such
Person.
"Exchange Act" means, as of any date, the Securities Exchange Act of 1934,
as amended, or any similar Federal statute then in effect and superseding such
act, and any reference to a particular section thereof shall include a reference
to the comparable section, if any, of such similar Federal statute, and the
rules and regulations thereunder.
"Fair Market Value" means the fair market value of shares of Common Stock
as determined from time to time by the Board of Directors as evidenced by a
resolution thereof.
"Management Investor" means any employee of the Company or any Subsidiary
thereof who purchases Common Stock, or receives options to purchase Common
Stock, from the Company, and each Permitted Transferee of any such Person.
"NASD" means the National Association of Securities Dealers, Inc. and its
successors and assigns.
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"Offered Securities" has the meaning specified in Section 4.l(a).
"Other Investor" means any person other than Capricorn, Harvard, the
Management Investors and the Director Investors who purchases Common Stock from
the Company and each Permitted Transferee of any such Person.
"Permitted Transferee" has the meaning specified in Section 3.2.
"Person" means an individual or a corporation, association, partnership,
limited liability company, joint venture, organization, business, trust or any
other entity or organization, including a government or any subdivision or
agency thereof.
"Pro Rata Portion" means, with reference to any Shareholder at any time, a
fraction, the numerator of which is the number of shares of Common Stock then
issued and outstanding and held by such Shareholder or issuable to such
Shareholder pursuant to options that are vested at such time and which such
Shareholder commits to exercise in connection with the transaction giving rise
to the determination of "Pro Rata Portion", and the denominator of which is the
aggregate number of shares of Common Stock then issued and outstanding held by
the Shareholders taken together or issuable pursuant to options that are vested
at such time and which the Shareholders commit to exercise in connection with
the transaction giving rise to the determination of "Pro Rata Portion" taken
together; provided, that options shall be deemed to be vested for such purpose
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if they will vest by reason of the transaction giving rise to the determination
of "Pro Rata Portion".
"Put Notice" has the meaning specified in Section 6.3.
"Registrable Securities" means(i) all shares of Common Stock outstanding on
the date hereof and now or hereafter owned of record or beneficially by the
Shareholders, (ii) any shares of Common Stock issued or issuable upon the
exercise of options and (iii) any shares of Capital Stock issued by the Company
in respect of any shares of Common Stock referred to in (i) or (ii) by way of a
stock dividend or stock split or in connection with a combination or subdivision
of shares, reclassification, recapitalization, merger, consolidation or other
reorganization of the Company.
As to any particular Registrable Securities that have been issued, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of under such registration statement, (ii) they shall have been distributed to
the public pursuant to Rule 144 under the Securities Act, (iii) they shall
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have been otherwise transferred or disposed of, and new certificates therefor
not bearing a legend restricting further transfer shall have been delivered by
the Company, and subsequent transfer or disposition of them shall not require
their registration or qualification under the Securities Act or any similar
state law then in force, (iv) they shall have ceased to be outstanding, or (v)
with respect to the Registrable Securities held by any Person, when such
Registrable Securities, when aggregated with the Registrable Securities held by
such Person's Affiliates, constitute 1% or less of the shares of Common Stock at
the time outstanding.
"Registration Expenses" shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with Section 5 hereof,
including, without limitation, all Commission, stock exchange and NASD
registration and filing fees, all fees and expenses of complying with securities
and blue sky laws (including the reasonable fees and disbursements of
underwriters' counsel in connection with blue sky qualifications and NASD
filings), all fees and expenses of the transfer agent and registrar for the
Registrable Securities, all printing expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, and one firm of counsel retained by each
Shareholder exercising its rights under Section 5 hereof, but excluding
underwriting discounts and commissions and applicable transfer and documentary
stamp taxes, if any, which shall be borne by the seller of the Registrable
Securities in all cases.
"Securities Act" means, as of any date, the Securities Act of 1933, as
amended, or any similar Federal statute then in effect and superseding such act,
and any reference to a particular section thereof shall include a reference to
the comparable section, if any, of any such similar Federal statute, and the
rules and regulations thereunder.
"Shareholder" means (i) Capricorn, (ii) Harvard, (iii) any Management
Investor who becomes a party hereto, (iv) any Director Investor who becomes a
party hereto, (v) any Other Investor who becomes a party hereto and (vi) each
Permitted Transferee who becomes a party to or bound by the provisions of this
Agreement in accordance with the terms hereof, in each case for so long as such
person continues to hold shares of Common Stock.
"Subsidiary" means, as to any Person, another Person of which outstanding
Voting Stock having the power to elect a majority of the members of the board of
directors (or comparable body or authority performing similar functions) of such
other Person are at
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the time owned, directly or indirectly through one or more intermediaries, or
both, by such first Person.
"Underwritten Offering" means a firm commitment underwriting through a
nationally recognized underwriter.
"Voting Stock" means Capital Stock of any class or classes, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for the
election of corporate directors (or Persons performing similar functions).
Section 20 Management.
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Section 2.1. Board of Directors. Subject to the terms of this Agreement
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and the Certificate of Incorporation and the By-Laws, the business and affairs
of the Company shall be managed by the Board of Directors, the members of which
will be elected annually by majority vote of the Shareholders and with any
vacancies to be filled by action of the remaining members of the Board of
Directors.
Section 2.2. No Conflict with Agreement. Each Shareholder shall vote its
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shares of Voting Stock of the Company, and shall take all actions necessary, to
ensure that the Certificate of Incorporation and By-Laws do not, at any time,
conflict with the provisions of this Agreement.
Section 30 Transfers of Shares of Common Stock and Preferred Stock.
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Section 3.1. Confirmation of Ownership. The Company hereby confirms that
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the number of shares of Common Stock set forth opposite each Shareholder's name
on Annex A hereto has been validly issued to such Shareholder and is fully paid
and nonassessable. Each Shareholder hereby confirms and agrees that as of the
date of this Agreement the number of shares of Common Stock and options to
purchase Common Stock set forth opposite such Shareholder's name on Annex A
hereto is such Shareholder's entire equity interest in the Company and that any
and all agreements heretofore entereed into by such Shareholder with the Company
contemplating the issuance of Common Stock or other equity interest in the
Company to such Shareholder are no longer in effect.
Section 3.2. Restrictions on Transfer. Each Shareholder agrees that such
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Shareholder will not, directly or indirectly, offer, sell, transfer, assign or
otherwise dispose of (or make any exchange, gift, assignment or pledge of)
(collectively, for purposes of Sections 3 and 4 only, a "transfer") any of its
shares of Common Stock, or op-
6
tions, warrants or rights to subscribe for or purchase shares of Common Stock
that may be issued hereafter to such Shareholder, except as provided in Section
3.3 or other than an exercise of options, warrants or rights to subscribe for or
purchase shares of Common Stock. In addition to the other restrictions contained
in this Section 3, each Shareholder agrees that it will not, directly or
indirectly, transfer any of its shares of Common Stock (or options, warrants or
rights that may be hereafter issued to such Shareholder) except as permitted
under the Securities Act and other applicable securities laws.
Section 3.3. Exceptions to Restrictions. The provisions of Section 3.2
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shall not apply to any of the following transfers:
(a) Any transfer from Capricorn to any Affiliate of Capricorn.
(b) Any transfer from Harvard to any Affiliate of Harvard.
(c) Any transfer from a Management Investor to members of such Management
Investor's immediate family or trusts for their benefit and, upon such
Management Investor's death, such Management Investor's executors,
administrators, testamentary trustees, legatees and beneficiaries.
(d) Any transfer from a Director Investor to members of such Director
Investor's immediate family or trusts for their benefit and, upon such Director
Investor's death, such Director Investor's executors, administrators,
testamentary trustees, legatees and beneficiaries.
(e) Any transfer from an Other Investor to members of such Other Investor's
immediate family or trusts for their benefit and, upon such Other Investor's
death, such Other Investor's executors, administrators, testamentary trustees,
legatees and beneficiaries.
(f) Any transfer approved by the Board of Directors (which approval shall
not be unreasonably withheld, it being understood that the Board of Directors
must provide reasons in writing to the proposed transferor in the event that it
withholds such consent).
(g) Any transfer of shares of Common Stock in accordance with Section 4,
Section 5 or Section 6 hereof.
The exceptions in clauses (a), (b), (c), (d) and (e) above are subject to the
condition that each such Affiliate or other transferee referred to therein (each
a "Permitted Transferee") shall execute the agreement referred to in Section
3.4(b) hereof. The provisions of this
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Agreement shall be applied to the shares of Common Stock acquired by any
Permitted Transferee of a Shareholder in the same manner and to the same extent
as such provisions were applicable to such shares of Common Stock in the hands
of such Shareholder. Any reference in this Agreement to Capricorn shall be
deemed to include Capricorn and its Permitted Transferees, any reference in this
Agreement to Harvard shall be deemed to include Harvard and its Permitted
Transferees, any reference to a Management Investor shall be deemed to include
such Management Investor and his Permitted Transferees, any reference to a
Director Investor shall be deemed to include such Director Investor and his
Permitted Transferees and any reference to an Other Investor shall be deemed to
include such Other Investor and its Permitted Transferees.
No transfer of any shares of Common Stock to a Permitted Transferee shall be
effective unless such transfer is made (i) pursuant to an effective registration
statement under the Securities Act and is qualified under applicable state
securities or blue sky laws or (ii) without registration under the Securities
Act and qualification under applicable state securities or blue sky laws, as a
result of the availability of an exemption from registration and qualification
under such laws, and such Shareholder shall have furnished to the Company a
certificate or, if reasonably requested by the Company, an opinion of counsel,
in either case reasonably satisfactory in form and substance to the Company and
its counsel, to that effect; provided, however, that no such certificate or
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opinion of counsel shall be required in connection with a transfer of shares of
Common Stock pursuant to Sections 4.1, 4.4 or 4.5 hereof.
Section 3.4. Endorsement of Certificates.
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(a) Upon the execution of this Agreement, in addition to any other legend
that the Company may deem advisable under the Securities Act and certain state
securities laws, all certificates representing shares of issued and outstanding
shares of Common Stock that are subject to any of the provisions of this
Agreement shall be endorsed at all times as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO,
AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF
A STOCKHOLDERS' AGREEMENT DATED AS OF JUNE __, 1998, AMONG THE
COMPANY AND ITS STOCKHOLDERS. A COPY OF THE ABOVE-REFERENCED
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN
EXEMPTION FROM REGISTRATION, UNDER SAID ACT.
(b) Except as otherwise expressly provided in this Agreement, all
certificates representing shares of Common Stock hereafter issued to or acquired
by any of the Shareholders or their successors or assigns shall bear the legends
set forth above, and the shares of Common Stock represented by such certificates
shall be subject to the applicable provisions of this Agreement. The
obligations of a party hereto shall be binding upon any transferee to whom
shares of Common Stock are transferred by such party, whether or not such
transfer is permitted under the terms of this Agreement. Prior to consummation
of any such transfer, such party shall cause the transferee to execute an
agreement in form and substance reasonably satisfactory to the other parties
hereto, providing that such transferee shall be bound by and shall fully comply
with the terms of this Agreement. Prompt notice shall be given to the Company
and each Shareholder by the transferor of any transfer (whether or not to a
Permitted Transferee) of any shares of Common Stock.
Section 3.5. Improper Transfer. Any attempt to transfer or encumber any
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shares of Common Stock other than in accordance with the terms of this Agreement
shall be null and void and neither the Company nor any transfer agent of such
securities shall give any effect to such attempted transfer or encumbrance in
its stock records.
Section 40 Rights of First Refusal; Drag-Along Rights; Tag-Along Rights.
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Section 4.1. Transfers by Shareholders.
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(a) Except for (i) transfers to a Permitted Transferee and (ii) the sale
of securities contemplated by Sections 5 and 6 hereof, if, at any time following
the seventh anniversary of the date hereof, a Shareholder other than Capricorn
(the "Selling Shareholder") receives a bona fide offer, which it desires to
accept (a "Transfer Offer"), to purchase any shares of Common Stock (or options,
warrants or rights to subscribe for or purchase shares of Common Stock) owned by
it, then the Selling Shareholder shall cause the Transfer Offer to be reduced to
writing and shall deliver written notice of such Transfer Offer (a "Transfer
Notice"), accompanied by a copy of such Transfer Offer, to the other
Shareholders (individually and collectively referred to as the "Other
Shareholders") and the Company, setting forth the identity of the offeror, the
number of shares of Common
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Stock (or options, warrants, or rights to subscribe for or purchase shares of
Common Stock) proposed to be transferred (the "Offered Securities"), the price
per security contained in the Transfer Offer (the "Transfer Offer Price Per
Security"), and all other terms applicable thereto. The Transfer Notice shall
also contain an irrevocable offer by the Selling Shareholder to sell the Offered
Securities to the Other Shareholders and the Company at a price equal to the
Transfer Offer Price Per Security and upon substantially the same terms as
contained in the Transfer Offer. In the event that the form of consideration
specified in the Transfer Offer is other than cash, the Other Shareholders and
the Company shall have the option of paying the Transfer Offer Price Per
Security in cash in an amount equal to the fair market value of such
consideration unless it is reasonably practicable to deliver substantially
identical consideration, in which case the purchaser may so deliver. Fair market
value shall be determined by a nationally recognized investment banking firm
mutually acceptable to the parties, unless they agree otherwise.
(b) Upon receipt of the Transfer Notice, the Company shall then have the
irrevocable right to accept such offer at the Transfer Offer Price Per Security
and on the other terms specified in the Transfer Offer with respect to all or
any portion of the Offered Securities; provided, however, that in the event the
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Company does not purchase any or all of the Offered Securities, the Other
Shareholders shall have the irrevocable right to purchase such unpurchased
Offered Securities (including any such Offered Securities not purchased by such
Other Shareholders hereunder) in proportion to each of such Other Shareholder's
Pro Rata Portion until all of such Offered Securities are purchased or until no
Other Shareholder desires to purchase any more Offered Securities. The rights
of each of the Other Shareholders and the Company pursuant to this Section
4.1(b) shall be exercisable by the delivery of notice to the Selling Shareholder
(the "Notice of Exercise"), within 30 calendar days from the date of delivery of
the Transfer Notice. The Notice of Exercise shall state the total number of
shares of the Offered Securities as to which each of the Other Shareholders or
the Company, as the case may be, is accepting under the offer, without regard to
whether or not the Company purchases any Offered Securities. A copy of such
Notice of Exercise shall also be delivered by the Other Shareholders to the
Company. The rights of the Other Shareholders and the Company pursuant to this
Section 4.1(b) shall terminate if unexercised 30 calendar days after the date of
delivery of the Transfer Notice.
(c) In the event that the Other Shareholders or the Company exercise their
rights to purchase all of the Offered Securities in accordance with Section
4.1(b) hereof, then the Selling Shareholder must sell such Offered Securities to
the Other Shareholders or the Company, as the case may be, at the Transfer Offer
Price Per Security and on the other terms specified in the Transfer Offer.
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(d) For purposes of this Section 4, any Person who has failed to give
notice of the election of an option hereunder within the specified time period
will be deemed to have waived its rights with respect thereto on the day
immediately following the last day of such period.
Section 4.2. Transfer of Offered Securities to Third Parties. If all
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notices required to be given pursuant to Section 4.1 hereof have been duly given
and the Other Shareholders and the Company offer to purchase fewer than all of
the Offered Securities pursuant to the provisions hereof, then the Selling
Shareholder shall have the right, subject to compliance by the Selling
Shareholder with the provisions of Section 3.4(b) hereof for a period of 120
calendar days from the earlier of (i) the expiration of the option period
pursuant to Section 4.1 hereof with respect to such Transfer Offer or (ii) the
date on which the Selling Shareholder receives notice from the Other
Shareholders and the Company that they will not exercise the option granted
pursuant to Section 4.1 hereof, to sell to any third party that is not an
Affiliate of the Selling Shareholder the Offered Securities at a price per
Offered Security of not less than 100% of the Transfer Offer Price Per Security
and on substantially the other terms specified in the Transfer Offer.
Section 4.3. Purchase of Offered Securities. The consummation of any
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purchase and sale pursuant to Section 4.1 hereof shall take place on such date,
not later than 30 calendar days after the expiration of the option period
pursuant to Section 4.1 hereof with respect to such option, as the Other
Shareholders or the Company, as the case may be, shall select. Prior to the
consummation of any sale pursuant to Section 4.1 hereof, the Selling Shareholder
shall comply with Section 3.4(b) hereof. Upon the consummation of any such
purchase and sale, the Selling Shareholder shall deliver certificates
representing the Offered Securities sold duly endorsed, free and clear of any
liens, against delivery of the Transfer Offer Price Per Security for each of the
Offered Securities purchased by certified or bank check, wire transfer or, in
the case of non-cash consideration, such other manner reasonably acceptable to
the parties.
Section 4.4. Drag-Along Rights.
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(a) If Capricorn approves or authorizes a sale or exchange, whether
directly or pursuant to a merger, consolidation or otherwise (the "Company
Sale"), of at least a majority of the then outstanding Common Stock in a bona
fide arm's-length transaction to a third party that is not an Affiliate of
Capricorn or of the Company (an "Independent Third Party"), then Capricorn shall
have the right, subject to all the provisions of this Section 4.4 (the "Drag-
Along Right"), to require each of the other Shareholders to (i) if
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such Company Sale is structured as a sale of stock, sell, transfer and deliver
or cause to be sold, transferred and delivered to such Independent Third Party
all shares of Common Stock, and other options, warrants or rights to subscribe
for or purchase Common Stock (the "Other Rights"), owned by them; provided,
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however, that if Capricorn agrees to sell less than all (the "Amount") of its
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shares of Common Stock to such Independent Third Party, each of the other
Shareholders shall only be required to sell, transfer and deliver to such
Independent Third Party an amount of shares of Common Stock and Other Interests
equal to the shares of Common Stock, and Other Interests, owned by it multiplied
by a fraction the numerator of which is the Amount and the denominator of which
is the total amount of shares of Common Stock, and Other Interests, owned by
Capricorn or (ii) if such Company Sale is structured as a merger, consolidation
or other transaction requiring the consent or approval of the Company's
shareholders, vote such Shareholder's shares of Voting Stock in favor thereof,
and otherwise consent to and raise no objection to such transaction, and waive
any dissenters' rights, appraisal rights or similar rights that such Shareholder
may have in connection therewith; and, in any such event, except to the extent
otherwise provided in subsection (c) of this Section 4.4, each such other
Shareholder shall agree to and shall be bound by the same terms, provisions and
conditions (including, without limitation, provisions in respect of
indemnification) in respect of the Company Sale as are applicable to Capricorn.
The provisions of Sections 4.1 through 4.3 hereof, inclusive, shall not apply to
any transactions to which this Section 4.4 applies.
(b) If Capricorn desires to exercise Drag-Along Rights, it shall give
written notice to the other Shareholders (the "Drag-Along Notice") of the
Company Sale, setting forth the name and address of the transferee, the date on
which such transaction is proposed to be consummated (which shall be not less
than 30 days after the date such Drag-Along Notice is given), and the proposed
amount and form of consideration and terms and conditions of payment offered by
such transferee, including, without limitation, the material terms of any debt
or equity securities proposed to be included as part of such consideration,
identifying the issuer or issuers thereof. If such consideration includes any
non-cash consideration, such notice shall also state the fair market value of
such non-cash consideration and shall describe in reasonable detail the method
by which such value shall have been determined.
(c) The obligations of the Shareholders in respect of a Company Sale under
this Section 4.4 are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Company Sale, the same form of consideration
and the same portion of the aggregate consideration realized upon such Company
Sale shall be paid or distributed in respect of each share of Common Stock then
issued and outstanding (except as contemplated by the proviso to Section 4.4 (a)
hereof); (ii) if any Shareholder is given
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an option as to the form and amount of consideration to be received, each
Shareholder will be given the same option; (iii) each holder of then currently
vested rights to acquire shares of Common Stock will be given a reasonable
opportunity to exercise such rights prior to the consummation of the Company
Sale and thereby to participate in such sale as a holder of such Common Stock;
(iv) the maximum liability of any Shareholder for indemnification in respect of
all matters arising pursuant to or in connection with the Company Sale shall not
exceed the net proceeds received by such Shareholder from such Company Sale; and
(v) no Shareholders shall be required to make general representations or
warranties regarding the financial condition, business, assets or affairs of the
Company and its Subsidiaries.
Section 4.5. Tag-Along Rights.
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(a) Notwithstanding anything in this Agreement to the contrary, except in
the case of (i) transfers by Capricorn to a Permitted Transferee referred to in
Section 3.3(a) hereof, (ii) transactions where Drag-Along Rights are exercised
pursuant to Section 4.4 hereof and (iii) sales pursuant to Section 5 hereof,
Capricorn shall refrain from effecting any transfer of the Common Stock unless,
prior to the consummation thereof, the other Shareholders shall have been
afforded the opportunity to join in such sale on the basis provided for in this
Section 4.5.
(b) Prior to consummation of such proposed transfer, Capricorn shall cause
the person or group that proposes to acquire such shares (the "Proposed
Purchaser") to offer in writing (the "Purchase Offer") to purchase shares of
Common Stock owned by the other Shareholders, such that the number of shares of
such Common Stock so offered to be purchased from the other Shareholders shall
be equal to the product obtained by multiplying the aggregate number of shares
of Common Stock proposed to be purchased by the Proposed Purchaser by such other
Shareholder's Pro Rata Portion. If the Purchase Offer is accepted by any other
Shareholder, then the number of shares of Common Stock to be sold to the
Proposed Purchaser by Capricorn, shall be reduced by the aggregate number of
shares of Common Stock to be purchased by the Proposed Purchaser from such other
Shareholder pursuant thereto. Such purchase shall be made on the same terms and
conditions as the Proposed Purchaser shall have offered to purchase shares of
Common Stock to be sold by Capricorn (net, in the case of any options, warrants
or rights, of any amounts required to be paid by the holder upon exercise
thereof). The other Shareholders shall have 20 days from the date of receipt of
the Purchase Offer during which to accept such Purchase Offer, and the closing
of such purchase shall occur within 30 days after such acceptance or at such
other time as the other Shareholders and the Proposed Purchaser may agree.
13
Section 50 Registration Rights.
-------------------
Section 5.1. Demand Registration.
-------------------
(a) Subject to the conditions and limitations hereinafter set forth in
this Section 5.1, following the one year anniversary of the effectuation of an
initial public offering by the Company of the Common Stock, Harvard may request
in writing that the Company effect the registration under the Securities Act of
all or part of Harvard's Registrable Securities specifying in the request the
number and type of Registrable Securities to be registered by Harvard and the
intended method of disposition thereof (such notice is hereinafter referred to
as a "Harvard Request"). A registration requested pursuant to this Section
5.1(a) is referred to herein as a "Demand Registration." Upon receipt of such
Harvard Request, the Company will promptly give written notice of such requested
Demand Registration to all other holders of Registrable Securities, which other
holders shall have the right (subject to the limitations set forth in Section
5.1(f) hereof) to include the Registrable Securities held by them in such
registration and thereupon the Company will, as expeditiously as possible, use
its best efforts to effect the registration under the Securities Act of the
following:
(i) the Registrable Securities that the Company has been so
requested to register by Harvard; and
(ii) all other Registrable Securities that the Company has been
requested to register by any other holder thereof by written request given
to the Company within 10 calendar days after the giving of such written
notice by the Company (which request shall specify the intended method of
disposition of such Registrable Securities), all to the extent necessary to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered.
(b) Subject to the proviso set forth in Section 5.1(e) hereof, (i) the
Company shall not be obligated to effect more than (A) one Demand Registration
pursuant to this Section 5.1 at the request of Harvard and (ii) the Company
shall not be obligated to file a registration statement under Section 5.1(a)
hereof unless the Company shall have received requests for such registration
with respect to at least 5% of the outstanding shares of Common Stock.
14
(c) The Company shall not be obligated to file a registration statement
relating to any Harvard Request under Section 5.1(a) hereof within a period of
12 months after the effective date of any other registration statement filed by
the Company with the Commission.
(d) In connection with any offering pursuant to this Section 5.1, the only
shares that may be included in such offering are (i) Registrable Securities and
(ii) shares of authorized but unissued Common Stock that the Company elects to
include in such offering ("Company Securities").
(e) If the Board of Directors of the Company makes a good faith
determination, certified by the Chief Executive Officer of the Company, that (i)
the filing of a registration statement or the compliance by the Company with its
disclosure obligations in connection with a registration statement would require
the disclosure of material information that the Company has a bona fide business
---- ----
purpose for preserving as confidential or (ii) such registration would be likely
to have an adverse affect on any proposal or plan by the Company to engage in
any financing transaction, acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction, the Company may delay the filing of a registration statement and
shall not be required to maintain the effectiveness thereof or amend or
supplement a registration statement for a period expiring upon the earlier to
occur of (A) the date on which such material information is disclosed to the
public or ceases to be material, in the case of clause (i), (B) the date on
which such transaction is completed or abandoned, in the case of clause (ii), or
(C) 120 days after the Company makes such good faith determination, in the case
of either clauses (i) or (ii); provided that in such event, the holders of
--------
Registrable Securities initiating the request for such registration will be
entitled to withdraw such request, and if such request is withdrawn such
registration will not count as the permitted registration under this Section 5.1
in such event or in any other event, if in the case of any other event, such
holder reimburses the Company for all Registration Expenses relating to such
withdrawn registration.
(f) If, in connection with any Underwritten Offering, the managing
underwriter shall advise the Company and any holder of Registrable Securities
that has requested registration that, in its judgment, the number of securities
proposed to be included in such offering should be limited due to market
conditions, the Company will so advise each holder of Registrable Securities
that has requested registration, and shares shall be excluded from such offering
in the following order until such limitation has been met: First, the
-----
Registrable Securities requested to be included by the Company shall be excluded
until all such Registrable Securities shall have been so excluded; and
thereafter,
- ----------
15
the Registrable Securities requested to be included in such offering pursuant to
Section 5.1(a)(i) hereof by Harvard or pursuant to Section 5.1(a)(ii) hereof by
other Shareholders shall be excluded pro rata, based on the respective number of
Registrable Securities as to which registration has been so requested by such
Shareholders.
(g) A registration requested pursuant to Section 5.1(a) hereof will not be
deemed to have been effected unless it has become effective; provided, that if
--------
after it has become effective, the offering of Registrable Securities pursuant
to such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court,
such registration will be deemed not to have been effected.
(h) If Harvard specifies in the Harvard Request an Underwritten Offering,
Harvard shall have the right, with the approval of the Company, which approval
shall not be unreasonably withheld, to select the managing underwriter;
provided, however, in the event that the Company has elected to include Company
- -------- -------
Securities in such offering, the Company shall have the right, with the approval
of a majority of the holders of Registrable Securities that have requested to be
included in such offering, which approval shall not be unreasonably withheld, to
select the managing underwriter.
(i) The Company will pay all Registration Expenses incurred in connection
with any Demand Registration effected by it pursuant to this Section 5.1.
Section 5.2. Piggyback Registrations.
-----------------------
(a) If at any time the Company proposes to register any of its equity
securities under the Securities Act (other than a registration on Form S-4 or S-
8 or any successor forms thereto) for the account of another Person or, at any
time following the effectuation of an initial public offering by the Company of
the Common Stock, for its own account, on a form and in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will give written notice to all the holders of Registrable
Securities promptly of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration, including, without limitation, (x) the intended method of
disposition of the securities offered, including whether or not such
registration will be effected through an underwriter in an Underwritten Offering
or on a "best efforts" basis, and, in any case, the identity of the managing
underwriter, if any, and (y) the price at which the Registrable Securities are
reasonably expected to be sold. Upon the written request of any holder of
Registrable Securities delivered to the Company within 30 calendar days after
the receipt
16
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such holder), the Company will effect the
registration under the Securities Act of all the Registrable Securities that the
Company has been so requested to register; provided, however, that:
-------- -------
(i) if, at any time after giving such written notice of its intention
to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each holder of Registrable Securities who shall have made a request for
registration as hereinabove provided and thereupon the Company shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith); and
(ii) if such registration involves an Underwritten Offering, all
holders of Registrable Securities requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as
apply to the Company.
(b) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 5.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans.
(c) If a registration pursuant to this Section 5.2 involves an
Underwritten Offering and the managing underwriter advises the issuer that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, the Company will so
advise each holder of Registrable Securities that has requested registration
pursuant to Section 5.2(a) hereof, and shares shall be excluded from such
offering pro rata, based on the respective number of Registrable Securities as
--- ----
to which registration has been so requested by such Shareholders, until all such
Registrable Securities shall have been so excluded; and thereafter, the
securities requested to be registered by the Company shall be excluded.
(d) In connection with any Underwritten Offering with respect to which
holders of Registrable Securities shall have requested registration pursuant to
this Section 5.2, the Company shall have the right to select the managing
underwriter with respect to the offering; provided that such managing
--------
underwriter shall be a nationally recognized investment banking firm.
17
(e) The Company will pay all Registration Expenses incurred in connection
with each of the registrations of Registrable Securities effected by it pursuant
to this Section 5.2.
Section 5.3. Registration Procedures.
-----------------------
(a) If and whenever the Company is required to use its best efforts to
effect or cause the registration of any Registrable Securities under the
Securities Act as provided in Section 5.1 or 5.2 hereof, the Company will, as
expeditiously as possible:
(i) prepare and, in any event within 90 calendar days after the end
of the period within which requests for registration may be given to the
Company, file with the Commission a registration statement with respect to
such Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective; provided, that the
--------
Company may discontinue any registration of its securities that is being
effected pursuant to Section 5.2 hereof at any time prior to the effective
date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for such period as may be requested
by the Shareholders not exceeding nine months and to comply with the
provisions of the Securities Act with respect to the disposition of all the
shares of Common Stock covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(iii) furnish to each holder of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such Registrable
Securities, such number of copies of a prospectus and preliminary
prospectus for delivery in conformity with the requirements of the
Securities Act, and such other documents, as such Person may reasonably
request, in order to facilitate the public sale or other disposition of the
Registrable Securities;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all
18
other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition of the Registrable
Securities owned by such seller in such jurisdictions, except that the
Company shall not for any such purpose be required (A) to qualify to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this Section 5.3(a)(iv), it is not then so qualified, (B)
to subject itself to taxation in any such jurisdiction, or (C) to take any
action which would subject it to general or unlimited service of process in
any such jurisdiction where it is then so subject;
(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 5.3(a)(ii) hereof, if
the Company becomes aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and, at the request of any such seller,
deliver a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Company), an earnings statement of the Company which will satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) use its best efforts in cooperation with the underwriters to
list such Registrable Securities on each securities exchange on which the
shares of Common Stock are then
19
listed or, if the shares of Common Stock are not then listed on a
securities exchange, on each securities exchange as the underwriters may
reasonably designate;
(ix) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration
statement;
(x) in the event such registration is effected through an
Underwritten Offering, use its best efforts to obtain a "cold comfort"
letter from the independent public accountants for the Company in customary
form and covering such matters of the type customarily covered by such
letters as the holders of Registrable Securities requesting registration
may reasonably request in order to effect an underwritten public offering
of such Registrable Securities; and
(xi) execute and deliver all instruments and documents (including in
an Underwritten Offering an underwriting agreement in customary form) and
take such other actions and obtain such certificates and opinions as the
holders of Registrable Securities requesting registration may reasonably
request in order to effect an underwritten public offering of such
Registrable Securities.
(b) It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 5 in respect of Registrable Securities
that each holder requesting registration thereof shall furnish to the Company
such information regarding the Registrable Securities held by such holder and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company; provided, however, that the failure of any holder of Registrable
-------- -------
Securities to furnish such information shall not affect the obligations of the
Company pursuant to this Section 5 with respect to any holder of Registrable
Securities who furnishes such information to the Company. Notwithstanding any
provision to the contrary contained herein, no holder of Registrable Securities
(other than any such holder who holds of record or beneficially owns more than
10% of the outstanding Voting Stock of the Company or who is a director, nominee
for director or executive officer of the Company) shall be required (i) to
furnish any information to the Company or the underwriters in connection with
such registration, other than in a writing furnished by such holder expressly
for use in such registration statement which shall be limited to matters
concerning such holder's identity, its beneficial ownership of securities of the
Company, the class and number of such securities it intends to include in such
registration and its intended method of distribution, or (ii) to make any
representations or warranties to the Company, the underwriters or any other
Person (whether in the underwriting agreement or otherwise), except with respect
to the information so furnished.
20
(c) Each holder of Registrable Securities will, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5.3(a)(vi) hereof, forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5.3(a)(vi) hereof.
(d) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, each holder of Registrable Securities agrees, whether or
not such holder's Registrable Securities are included in such registration, not
to effect any sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registrable Securities, or of any security
convertible into or exchangeable or exercisable for any Registrable Securities
(other than as part of such Underwritten Offering), without the consent of the
managing underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration; provided, that
--------
such period shall not extend beyond the period during which the Company is
subject to such a restriction.
(e) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, the Company agrees, if so required by the managing
underwriter, not to effect any sale or distribution of any of its equity or debt
securities, as the case may be, or securities convertible into or exchangeable
or exercisable for any of such equity or debt securities, as the case may be,
during a period commencing seven calendar days before and ending 180 calendar
days after the effective date of such registration, except for such Underwritten
Offering or except in connection with a stock option plan, stock purchase plan,
savings or similar plan, or an acquisition, merger or exchange offer.
(f) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, any holder of Registrable Securities requesting to be
included in such registration may elect, in writing, not less than five days
prior to the effective date of the registration statement filed in connection
with such registration, not to register such securities in connection with such
registration, unless such holder has agreed with the Company or the managing
underwriter to limit its rights under this Section 5.3.
(g) It is understood that in any Underwritten Offering in addition to any
shares of Common Stock (the "initial shares") the underwriters have committed to
purchase, the underwriting agreement may grant the underwriters an option to
purchase up to a number of additional authorized but unissued shares of Common
Stock (the "option shares")
21
equal to 15% of the initial shares (or such other maximum amount as the NASD may
then permit), solely to cover over-allotments. Shares of Common Stock proposed
to be sold by the Company and the other sellers shall be allocated between
initial shares and option shares as agreed or, in the absence of agreement,
pursuant to Section 5.1(f) or 5.2(c) hereof, as the case may be. The number of
initial shares and option shares to be sold by requesting holders shall be
allocated pro rata among all such holders on the basis of the relative
--- ----
number of shares of Registrable Securities each such holder has requested to be
included in such registration.
Section 5.4. Indemnification.
---------------
(a) In the event of any registration of any securities under the Securities
Act pursuant to Section 5.1 or 5.2 hereof, the Company will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law, each
seller of any Registrable Securities covered by such registration statement, its
directors, officers, employees and agents, each Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration statement
(or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading, or arising out of an untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein not misleading;
(ii) against any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with any matter relating to such
registration statement;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or
22
omission, or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Company; and
(iv) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under clauses
(i), (ii) or (iii) above;
provided, however, that this indemnity does not apply to any loss, liability,
- -------- -------
claim, damage or expense to the extent arising out of an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such seller or underwriter specifically stating that it is for use
in the preparation of any registration statement (or any amendment thereto) or
any preliminary prospectus or prospectus (or any amendment or supplement
thereto); and provided, further, that the Company will not be liable (A) in the
-------- -------
case of any Underwritten Offering, to any Person who participates as an
underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, or (B) in the case of any offering other than an Underwritten
Offering, to any seller of Registrable Securities covered by such registration
statement or any other Person, if any, who controls such seller within the
meaning of the Securities Act, under the indemnity agreement in this Section
5.4(a) with respect to any preliminary prospectus or final prospectus or final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, claim, damage or liability of such underwriter or controlling
Person (or seller or controlling Person, as the case may be) results from the
fact that such underwriter (or seller, as the case may be) sold Registrable
Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus or of the
final prospectus as then amended or supplemented, whichever is most recent, if
the Company has previously furnished copies thereof to such underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller, director, officer, employee, agent,
underwriter or controlling Person, and shall survive the transfer of such
securities by such seller.
(b) The Company may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section 5.1 or
5.2 hereof, that the Company shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable Securities or
any underwriter, to indemnify and
23
hold harmless (in the same manner and to the same extent as set forth in Section
5.4(a) hereof) the Company and its directors and officers and each other Person,
if any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any such amendment or supplement, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such seller or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement; provided, however, that the maximum
-------- -------
liability of any seller of Registrable Securities for such indemnification shall
not exceed the net proceeds received by such seller from the sale of such
Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of such
securities by such seller.
(c) Promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 5.4, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to such indemnifying party of the commencement of such action; provided,
--------
however, that the failure of any indemnified party to give notice as provided
- -------
herein shall not relieve the indemnifying party of its obligations under this
Section 5.4, except to the extent (not including any such notice of an
underwriter) that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim (in which case the indemnifying party shall not be liable for the
fees and expenses of more than one counsel for the sellers of Registrable
Securities or for more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof.
24
(d) The Company and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any underwriting
agreement with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority.
Section 5.5. Contribution. In order to provide for just and equitable
------------
contribution in circumstances under which the indemnity contemplated by Section
5.4 hereof is for any reason not available, the parties required to indemnify by
the terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, any seller of Registrable Securities and one or more of
the underwriters, except to the extent that contribution is not permitted under
Section 11(f) of the Securities Act. In determining the amounts that the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to correct
and prevent any statement or omission and any other equitable considerations
appropriate under the circumstances. The Company and each Person selling
securities agree with each other that no seller of Registrable Securities shall
be required to contribute any amount in excess of the amount such seller would
have been required to pay to an indemnified party if the indemnity under Section
5.4 hereof were available. The Company and each such seller agree with each
other and the underwriters of the Registrable Securities, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
--- ----
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Registrable Securities. For
purposes of this Section 5.5, each Person, if any, who controls an underwriter
within the meaning of the Securities Act shall have the same rights to
contribution as such underwriter, and each director and each officer of the
Company who signed the registration statement, and each Person, if any, who
controls the Company or a seller of Registrable Securities, shall have the same
rights to contribution as the Company or a seller of Registrable Securities, as
the case may be.
Section 5.6. Rule 144. If the Company shall have filed a registration
--------
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the
25
Company is not required to file such reports, it will, upon the request of any
holder of Registrable Securities, make publicly available other information),
and it will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such Rule may be amended from time to time or (ii)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether the Company has complied with such
requirements.
Section 6. Call Right of the Company; Put Right of Management Investors
------------------------------------------------------------
and the Director Investors.
- --------------------------
Section 6.1. Call Right; Purchase Price. If a Management Investor's
--------------------------
employment with the Company or any of its Subsidiaries is terminated, or a
Director Investor' status as a director of the Company is terminated, for any
reason prior to equity securities of the Company having been registered under
the Securities Act, the Company shall have the option, for a period commencing
46 days and ending 90 days after the Date of Termination, to purchase all or any
portion of the shares of Common Stock held by such Management Investor, Director
Investor or his Permitted Transferees. The Company may exercise such option by
giving notice thereof (the "Call Notice") to such Management Investor or
Director Investor prior to the expiration of such period. If such termination
is other than by the Company for Cause, the purchase price applicable to such
shares of Common Stock shall be the Fair Market Value of such shares as of the
Date of Termination and if such termination is by the Company for Cause, the
Company shall have the right to require such Management Investor to forfeit to
the Company on the Termination Date all of the shares of Common Stock held by
such Management Investor or his Permitted Transferees.
Section 6.2. Call Notices. The Call Notice shall specify the number of
------------
shares of Common Stock owned by the Management Investor or Director Investor as
to which the Company is exercising its call right pursuant to Section 6.1 and
shall contain an irrevocable offer to purchase such shares at a price equal to
the price required to be paid by the Company pursuant to Section 6.1.
Section 6.3. Put Right; Sale Price. If a Management Investor's employment
---------------------
with the Company or any of its Subsidiaries is terminated other than for Cause,
or a Director Investor's status a director of the Company is terminated, prior
to equity securities of the
26
Company having been registered under the Securities Act, then such Management
Investor or Director Investor shall have the right for a period of 45 days after
the Date of Termination to sell all or any portion of his shares of Common Stock
to the Company and the Company shall be obligated to purchase such shares. The
Management Investor or Director Investor may exercise such right by giving
notice thereof (the "Put Notice") to the Company prior to the expiration of such
period. The purchase price applicable to such shares of Common Stock shall be:
(i) if the Management Investor's employment with the Company is terminated
involuntarily other than for Cause, the greater of (A) the amount paid (or
deemed to have been paid) by such Management Investor for such shares and (B)
the Fair Market Value of such shares as of the Date of Termination; (ii) if the
Management Investor's employment with the Company is terminated voluntarily, the
lesser of (A) the amount paid (or deemed to have been paid) by such Management
Investor for such shares and (B) the Fair Market Value of such shares as of the
Date of Termination; (iii) if the Director Investor's status as a director of
the Company is terminated involuntarily, the greater of (A) the amount paid (or
deemed to have been paid) by such Director Investor for such shares and (B) the
Fair Market Value of such shares as of the Date of Termination; or (ii) if the
Director Investor's status as a director of the Company is terminated
voluntarily, the lesser of (A) the amount paid (or deemed to have been paid) by
such Director Investor for such shares and (B) the Fair Market Value of such
shares as of the Date of Termination.
Section 6.4. Put Notices. The Put Notice shall specify the number of
-----------
shares owned by the Management Investor or Director Investor as to which he is
exercising his put right pursuant to Section 6.3 and shall contain an
irrevocable offer to purchase such shares at a price equal to the price required
to be paid by the Company pursuant to Section 6.3.
Section 6.5. Method of Payment. Upon any exercise by the Company of its
-----------------
call right or the Management Investor or Director Investor of his put right
under Section 6, the Company shall pay the applicable purchase price by a
certified check or checks or in cash; provided, however, that, at the election
-------- -------
of the Company, the purchase price may be paid by a certified check or checks
for 25% of the appropriate amount, plus a note of the Company in the principal
amount of 75% of the purchase price, payable in three equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually at the rate then paid by the Company on its bank debt or other
senior debt as determined by the Board of Directors. If the Company is
prohibited by any agreement from making a payment contemplated by this Section 6
or if any Subsidiary of the Company is prohibited from making a payment to the
Company to
27
enable the Company to make such payment, such payment by the Company shall be
deferred until such time as such payments are permitted.
Section 6.6. Closing. The closing by the Company of any exercise of its
-------
call right under Section 6.1 or of any exercise by a Management Investor or
Director Investor of his put right under Section 6.3 shall take place at the
offices of the Company, or such other place as may be mutually agreed, not less
than 15 nor more than 30 days after the date such right is exercised, as
specified by the Company in its Call Notice or by the Management Investor or the
Director Investor in his Put Notice. At such closing, such Management Investor
or the Director Investor shall deliver certificates for the shares of Common
Stock to be sold to the Company duly endorsed, or accompanied by written
instruments to transfer in form satisfactory to the Company duly executed, by
such Management Investor or Director Investor, free and clear of any liens,
against payment by the Company of the applicable purchase price therefor.
Shares of Common Stock forfeited pursuant to Section 6.1 hereof shall be
transferred to, and reacquired by, the Company without payment of any
consideration by the Company, and neither the Management Investor or the
Director Investor nor any of his successors, heirs, assigns or personal
representatives shall thereafter have any further rights or interests in such
shares or certificates. If certificates containing restrictive legends shall
have theretofore been delivered to the Management Investor or the Director
Investor, such certificates shall be returned to the Company, complete with any
necessary signatures or instruments of transfer.
Section 7. Miscellaneous.
-------------
Section 7.1. Inspection Rights. Each Shareholder shall have the right,
-----------------
upon reasonable prior notice to the Company, to visit and inspect the properties
of the Company and its Subsidiaries and to examine and copy (at its own expense)
their books of record and accounts, and to discuss their affairs, finances, and
accounts with their officers and their current and prior independent public
accountants, all at such times (during normal business hours) as such
Shareholder may reasonably request. The foregoing rights are in addition to,
and are not intended to limit, any rights that the Shareholders may have under
the law of the State of Delaware, including Sections 219 and 220 of the Delaware
General Corporation Law.
Section 7.2. Confidentiality. All materials and information obtained by
---------------
any Shareholder pursuant to Section 7.1 hereof shall be kept confidential and
shall not be disclosed to any third party except (a) as has become generally
available to the public (other than through disclosure by such Shareholder in
contravention of this Agreement), (b) to such Shareholder's directors, officers,
trustees, partners, employees, agents, and professional consultants on a need to
know basis, (c) to any other holder of shares of
28
Common Stock, (d) to any Person to which such Shareholder offers to sell or
transfer any shares of Common Stock, provided that the prospective transferee
--------
shall agree to be bound by the provisions of this Section 7.2, (e) in any
report, statement, testimony or other submission to any governmental authority
having or claiming to have jurisdiction over such Shareholder, or (f) in order
to comply with any law, rule, regulation, or order applicable to such
Shareholder, or in response to any summons, subpoena or other legal process or
formal or informal investigative demand issued to such Shareholder in the course
of any litigation, investigation or administrative proceeding.
Section 7.3. Successors and Assigns. Except as otherwise provided herein,
----------------------
all the terms and provisions of this Agreement shall be binding upon, shall
inure to the benefit of and shall be enforceable by the respective successors
and assigns of the parties hereto. No Shareholder may assign any of its rights
hereunder to any Person other than a transferee that has complied in all
respects with the requirements of this Agreement (including, without limitation,
Section 3.4 hereof). The Company may not assign any of its rights hereunder to
any other Person. If any transferee of any Shareholder shall acquire any shares
of Common Stock in any manner, whether by operation of law or otherwise, such
shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such shares such Person shall be entitled to receive the
benefits of and be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement.
Section 7.4. Amendment and Modification: Waiver of Compliances; Conflicts.
------------------------------------------------------------
(a) This Agreement may be amended only by a written instrument duly
executed by all of the Shareholders. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Shareholders
shall cause the Board of Directors to meet within 30 calendar days following
such amendment or modification or as soon thereafter as is practicable for the
purpose of adopting any amendment to the Certificate of Incorporation and By-
Laws that may be required as a result of such amendment or modification to this
Agreement, and, if required, proposing such amendments to the Shareholders
entitled to vote thereon, and the Shareholders agree to vote in favor of such
amendments.
(b) Except as otherwise provided in this Agreement, any failure of any of
the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance
29
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this Agreement
and the provisions of any other agreement, the provisions of this Agreement
shall govern and prevail.
Section 7.5. Notices. All notices and other communications provided for
-------
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), sent as follows:
(i) If to Capricorn, addressed to:
Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(ii) If to a Management Investor, a Director Investor or an Other
Investor,addressed to such shareholder at the address set forth in the
stock records of the Company;
(iii) If to the Company, addressed to:
Mrs. Fields' Holding Company, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
30
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(iv) If to Harvard, addressed to:
Harvard Private Capital Group, Inc.
600 Atlantic Avenue
26th Floor
Boston, Massachusetts 02210-2203
Attention: John Sallay
Telecopy: (617) 523-1063
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Larry Rowe
Telecopy: (617) 951-7050
or to such other address or addresses or telecopy number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such communications shall be deemed to have
been given or made when so delivered by hand or sent by telecopy, or three
business days after being so mailed.
Section 7.6. Entire Agreement: Governing Law.
-------------------------------
(a) This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties hereto with respect to the subject transactions contemplated hereby and
supersede all prior oral and written agreements and memoranda and undertakings
among the parties hereto with
31
regard to this subject matter. The Company represents to the Shareholders that
the rights granted to the holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted or obligations accepted under any
other agreement (including the Certificate of Incorporation) to which the
Company is a party. Neither the Company nor any Subsidiary of the Company will
hereafter enter into any agreement with respect to its equity or debt securities
which is inconsistent with the rights granted to any Shareholder under this
Agreement without obtaining the prior written consent of such Shareholder.
(B) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES THEREOF).
Section 7.7. Injunctive Relief. The Shareholders acknowledge and agree
-----------------
that a violation of any of the terms of this Agreement will cause the
Shareholders irreparable injury for which an adequate remedy at law is not
available. Therefore, the Shareholders agree that each Shareholder shall be
entitled to, an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Shareholder from committing any
violations of the provisions of this Agreement.
Section 7.8. Availability of Agreement. For so long as this Agreement
-------------------------
shall be in effect, this Agreement shall be made available for inspection by any
Shareholder upon request at the principal executive offices of the Company.
Section 7.9. Headings. The section and paragraph headings contained in
--------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 7.10. Recapitalizations, Exchanges, Etc. Affecting the Shares of
----------------------------------------------------------
Common Stock; New Issuances. The provisions of this Agreement shall apply, to
- ---------------------------
the full extent set forth herein with respect to the shares of Common Stock and
to any and all equity or debt securities of the Company or any successor or
assign of the Company (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of, such equity or debt securities and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
32
Section 7.11. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.12. Arbitration.
-----------
(a) Any disagreement, dispute, controversy or claim arising out of
or relating to this Agreement or the transactions contemplated hereby,
including, without limitation, the interpretation hereof and any breach,
termination or invalidity hereof, shall be settled exclusively and finally (i)
through good faith negotiation of the parties for a period not in excess of 30
days and (ii) in the event such negotiations do not yield a settlement within
such 30-day period, by arbitration (irrespective of the magnitude thereof, the
amount in controversy or whether such matter would otherwise be considered
justiciable or ripe by a court or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association (the
AArbitration Rules@), except as those rules conflict with the provisions of this
Section 7.12, in which event the provisions of this Section 7.12 shall control.
(c) The arbitral tribunal shall consist of three arbitrators chosen
in accordance with the Arbitration Rules. The arbitration shall be conducted in
New York City. Any submission of a matter for arbitration shall include joint
written instructions of the parties requiring the arbitral tribunal to render a
decision resolving the matters submitted within 60 days following the submission
thereof.
(d) Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties agree that
the arbitral award may be enforced against the parties to the arbitration
proceeding or their assets wherever they may be found and that a judgment upon
the arbitral award may be entered in any court having jurisdiction thereof.
(e) All out-of-pocket costs and expenses incurred by any party in
connection with the resolution of any disagreement, dispute, controversy or
claim pursuant to this Section 7.12, including, but not limited to, reasonable
attorney's fees and disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall have the discretion to
-------- -------
declare any party as the Aprevailing party@ with respect to one or more of the
issues that were the subject of the arbitration and to
33
require the other parties to the arbitration to reimburse such Aprevailing
party@ for some or all of its costs and expenses incurred in connection with
such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between the parties, unless there is a Aprevailing party,@ in which case the
arbitral tribunal may allocate more or all of such costs to the party thereto
that is not the Aprevailing party@.
(g) This Section 7.12 shall not prohibit or limit in any way any
party from seeking or obtaining preliminary or interim injunctive or other
equitable relief from a court for a breach or alleged breach of any of the
covenants and agreements of another party contained in this Agreement.
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MRS. FIELDS' HOLDING COMPANY, INC.
By:__________________________
Name:
Title:
HARVARD PRIVATE CAPITAL HOLDINGS, INC.
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
CAPRICORN INVESTORS II, L.P.
By Capricorn Holdings L.L.C.,
General Partner
By:___________________________
Name:
Title:
35
MANAGEMENT INVESTORS:
________________________________
Larry A. Hodges
_________________________________
L. Timothy Pierce
______________________________
Michael R. Ward
______________________________
Garry Remington
______________________________
Pat W. Knotts
36
DIRECTOR INVESTORS:
________________________________
Peter Mullin
________________________________
Richard Ferry
________________________________
Walker Lewis
________________________________
Gilbert Osnos
OTHER INVESTORS:
________________________________
Karen Mills
37
TABLE OF CONTENTS
(Not Part of Agreement)
Section Heading Page
- ------- ------- ----
1. Certain Definitions........................................... 2
2. Management.................................................... 7
2.1. Board of Directors; Shareholders...................... 7
2.2. Authority of Board of Directors....................... 8
2.3. No Conflict with Agreement............................ 8
3. Transfers of Shares of Common Stock .......................... 8
3.1. Restrictions on Transfer.............................. 8
3.2. Exceptions to Restrictions............................ 9
3.3. Endorsement of Certificates........................... 10
3.4. Improper Transfer..................................... 11
4. Rights of First Refusal; Drag-Along Rights; Tag-Along Rights.. 11
4.1. Transfers by Shareholders............................. 11
4.2. Transfer of Offered Securities to Third Parties....... 13
4.3. Purchase of Offered Securities........................ 13
4.4. Drag-Along Rights..................................... 14
4.5. Tag-Along Rights...................................... 16
5. Registration Rights........................................... 17
5.1. Demand Registration................................... 17
5.2. Piggyback Registrations............................... 20
5.3. Registration Procedures............................... 22
5.4. Indemnification....................................... 27
5.5. Contribution.......................................... 30
5.6. Rule 144.............................................. 31
6. Call Right of the Company; Put Right of Management Investors.. 32
6.1. Call Right; Purchase Price............................ 32
6.2. Call Notices.......................................... 32
6.3. Put Right; Sale Price................................. 32
1
6.4. Put Notices........................................... 33
6.5. Method of Payment..................................... 33
6.6. Closing............................................... 33
7. Miscellaneous.................................................. 34
7.1. Inspection Rights..................................... 34
7.2. Confidentiality....................................... 34
7.3. Successors and Assigns................................ 35
7.4. Amendment and Modification: Waiver of
Compliances; Conflicts............................... 35
7.5. Notices............................................... 36
7.6. Entire Agreement: Governing Law....................... 37
7.7. Injunctive Relief..................................... 38
7.8. Availability of Agreement............................. 38
7.9. Headings.............................................. 38
7.10. Recapitalizations, Exchanges, Etc.
Affecting the Shares of Common Stock; New Issuances.. 38
7.11. Counterparts.......................................... 38
7.12. Arbitration........................................... 39
2