RAYOVAC CORPORATION
SHAREHOLDERS AGREEMENT
Dated as of September 12, 1996
RAYOVAC CORPORATION
SHAREHOLDERS AGREEMENT
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TABLE OF CONTENTS
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Page
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PREAMBLE............................................................................................1
ARTICLE I Definitions..............................................................2
ARTICLE II Covenants and Conditions.................................................7
Section 2.1 Restrictions on Transfers................................................7
Section 2.2 Call by the Company.....................................................10
Section 2.3 Come Along..............................................................13
Section 2.4 Take Along..............................................................15
Section 2.5 Preemptive Rights.......................................................16
Section 2.6 Restrictions on Other Agreements........................................18
Section 2.7 Synthetic Sales.........................................................18
ARTICLE III Registration Rights.....................................................18
Section 3.1 General.................................................................18
Section 3.2 Demand Registrations....................................................18
Section 3.3 Piggyback Registration..................................................19
Section 3.4 Obligations of the Company..............................................20
Section 3.5 Furnish Information.....................................................24
Section 3.6 Expenses of Registration................................................24
Section 3.7 Underwriting Requirements...............................................25
Section 3.8 Indemnification.........................................................25
Section 3.9 Lock-Up Agreement.......................................................28
Section 3.10 No Inconsistent Agreements..............................................29
Section 3.11 Stock Split and Reverse Stock Split.....................................29
ARTICLE IV Miscellaneous...........................................................30
Section 4.1 Remedies................................................................30
Section 4.2 Entire Agreement; Amendment; Waiver.....................................30
Section 4.3 Severability............................................................31
Section 4.4 Notices.................................................................31
Section 4.5 Binding Effect; Assignment..............................................32
Section 4.6 Governing Law...........................................................32
Section 4.7 Termination.............................................................32
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Section 4.8 Recapitalization, Exchanges, Etc........................................33
Section 4.9 Lee Group Shareholder Representative....................................33
Section 4.10 Action Necessary to Effectuate the Agreement............................34
Section 4.11 Purchase for Investment; Legend on Certificate..........................34
Section 4.12 Effectiveness of Transfers..............................................34
Section 4.13 Additional Shareholders.................................................35
Section 4.14 No Waiver...............................................................35
Section 4.15 Financial Statements....................................................36
Section 4.16 Counterpart.............................................................36
Section 4.17 Headings................................................................36
Section 4.18 Number; Gender..........................................................36
EXHIBIT A Schedule of Shareholders
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SHAREHOLDERS AGREEMENT
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This Shareholders Agreement (this "Agreement") is entered into as of
the 12th day of September, 1996, by and among Rayovac Corporation, a Wisconsin
corporation (the "Company"), those persons listed as Lee Group Shareholders on
the signature pages hereof, including Thomas H. Lee Equity Fund III, L.P., a
Delaware limited partnership ("Equity Fund") (collectively, the "Lee Group
Shareholders"), those persons listed as Management Shareholders on the
signatures pages hereof (the "Management Shareholders") and those persons listed
as Non-Management Shareholders on the signatures pages hereof (the
"Non-Management Shareholders"). The Management Shareholders and the
Non-Management Shareholders are sometimes collectively referred to herein as the
"Existing Shareholders". The Lee Group Shareholders and the Existing
Shareholders are sometimes collectively referred to herein as the
"Shareholders".
WHEREAS, upon consummation of the transactions (including a 5 for 1
stock split) contemplated by that certain Stock Purchase and Redemption
Agreement dated as of September 12, 1996 (the "Stock Purchase and Redemption
Agreement"), by and among the Company, the Existing Shareholders and the Lee
Group Shareholders, the Shareholders will own the number of shares of Common
Stock set forth opposite their respective names on Exhibit A hereto; and
WHEREAS, each of the Shareholders desires to enter into this Agreement
for the purpose of regulating certain aspects of the Shareholders' relationships
with regard to the Company and certain restrictions on, and rights and
obligations with respect to, the Common Stock owned by the Shareholders.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
Definitions
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For the purposes of this Agreement, the following terms shall be
defined as follows:
1933 Act. The "1933 Act" shall mean the Securities Act of 1933, as
amended.
1934 Act. The "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
Affiliate. An "Affiliate" of a specified person, corporation or other
entity shall mean a person, corporation or other entity which, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, the corporation or other entity specified and,
when used with respect to the Company or any Subsidiary of the Company, shall
include any holder of at least 5% of the capital stock, or any officer or
director, of the Company.
Anniversary Date. "Anniversary Date" shall mean September 12, 1997.
Associate. "Associate," (a) when used to indicate a relationship with
any Person shall mean, (i) any corporation or organization of which such Person
is an officer or partner or is, directly or indirectly, the beneficial owner of
ten percent (10%) or more of any class of equity securities, (ii) any trust or
other estate in which such Person has a substantial beneficial interest or as to
which such Person serves as a trustee or in a similar fiduciary capacity and
(iii) any relative of such Person who has the same home as such Person, is a
parent, aunt or uncle, sibling, spouse, in-law, child, niece or nephew or
grandchild of such Person, or the spouse of any of them, or (b) when used to
indicate a relationship with the Company, shall also mean a director or officer
of the Company or any Subsidiary. Neither the Company nor any of its
Subsidiaries shall be deemed an Associate of any Shareholder.
Board. The "Board" shall mean the Board of Directors of the Company as
the same shall be constituted from time to time.
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Cause. "Cause" shall mean (a) the commission of any fraud, embezzlement
or other material act of dishonesty with respect to the Company or any of its
Affiliates (including the unauthorized disclosure of confidential or proprietary
information of the Company or any of its Affiliates or Subsidiaries), (b) a
conviction of, or plea of guilty or nolo contendere to, a felony or other crime
involving moral turpitude, (c) willful misconduct or (d) willful failure or
refusal to perform one's duties and responsibilities to the Company or any of
its Affiliates which failure or refusal to perform is not remedied within thirty
(30) days after receipt of a written notice from the Company detailing such
failure or refusal to perform.
Common Stock. "Common Stock" shall mean the Company's common stock,
$.01 par value, that the Company may be authorized to issue from time to time,
any other securities of the Company into which such Common Stock may hereafter
be changed or for which such Common Stock may be exchanged after giving effect
to the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise) and shall also include any
common stock of the Company hereafter authorized and any capital stock of the
Company of any other class hereafter authorized which is not preferred as to
dividends or distribution of assets in liquidation over any other class of
capital stock of the Company and which has ordinary voting power for the
election of directors of the Company.
The Company. The "Company" shall mean Rayovac Corporation, a Wisconsin
corporation, and its successors and assigns.
Lee Group Shareholder Representative. "Lee Group Shareholder
Representative" shall have the meaning set forth in Section 4.9 hereof.
Permitted Transfer. A "Permitted Transfer" shall mean:
(a) a Transfer of Shares by any Shareholder who is a natural
person to such Shareholder's spouse, children, grandchildren, parents or
siblings or a trust for the benefit of any of them;
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(b) a bona fide pledge of Shares by a Shareholder to a bank,
financial institution or other lender;
(c) a Transfer of Shares between any Shareholder who is a
natural person and such Shareholder's guardian or conservator;
(d) a bona fide gift of Shares by a Shareholder to a
charitable institution as defined in Section 501(c) of the Internal Revenue Code
of 1986, as amended, provided such Transfer is reasonably acceptable to the
Company;
(e) a Transfer of Shares from any Shareholder which is a
partnership to its partners, provided such Transfer is reasonably acceptable to
the Company;
(f) a Transfer of Shares from any Shareholder which is a
corporation or partnership to any Affiliate of such Shareholder, provided such
Transfer is reasonably acceptable to the Company; or
(g) a Transfer of Shares by a Lee Group Shareholder to another
Lee Group Shareholder or other employee of Thomas H. Lee Company, or by a
Non-Management Shareholder to another Non-Management Shareholder.
No Permitted Transfer shall be effective unless and until the transferee of the
Shares so transferred, if such transferee is not already a party to this
Agreement, executes and delivers to the Company an executed counterpart of this
Agreement in accordance with the terms of Section 4.13 hereof. No Permitted
Transfer shall conflict with or result in any violation of a judgment, order,
decree, statute, law, ordinance, rule or regulation.
Permitted Transferee. A "Permitted Transferee" shall mean any Person
who shall have acquired and who shall hold Shares pursuant to a Permitted
Transfer described above.
Person. "Person" shall mean an individual, corporation, partnership,
trust, or unincorporated association, or a government or any agency or political
subdivision thereof.
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Prior Shareholders Agreement. "Prior Shareholders Agreement" shall
mean, collectively, the Amended and Restated Shareholder's Agreements, dated as
of December 1991, entered into by the Company, Thomas F. Pyle and certain
shareholders of the Company.
Public Offering. A "Public Offering" shall mean the completion of a
sale of Common Stock, resulting in gross cash proceeds of not less than $20
million, pursuant to a registration statement which has become effective under
the 1933 Act, excluding registration statements on Form S-4, S-8 or similar
limited purpose forms and also excluding the registration of any equity security
issued to non-Affiliates of the Company as part of a bona fide debt offering of
units comprised of such equity security and a debt security of the Company.
Registrable Securities. "Registrable Securities" shall mean all shares
of Common Stock held from time to time by any party hereto and any other
securities of the Company or any of its Subsidiaries issued in exchange for,
upon a reclassification of, or in a distribution with respect to, such Common
Stock. As to any particular Registrable Securities, such securities shall cease
to be Registrable Securities when (a) a registration statement with respect to
the sale of such securities shall have become effective under the 1933 Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) such securities shall have been sold under a Rule 144 Transaction
or (c) such securities shall have ceased to be outstanding.
Rule 144 Transaction. "Rule 144 Transaction" shall mean a transfer of
Shares (a) complying with Rule 144 under the 1933 Act as such Rule or a
successor thereto is in effect on the date of such transfer (but only a sale
pursuant to a "brokers transaction" as defined in clauses (i) and (ii) of
paragraph (g) of Rule 144 as in effect on the date hereof) and (b) occurring at
a time when Shares are registered pursuant to Section 12 of the 1934 Act.
Schedule. "Schedule" shall refer to the Schedule of Shareholders
attached hereto as Exhibit A.
Shares. "Shares" shall mean (a) all shares of Common Stock held by
Shareholders from time to time, (b)
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all shares of Common Stock subsequently held by Permitted Transferees who
acquire them in one or more Permitted Transfers and (c) securities of the
Company issued in exchange for, upon reclassification of, or as a distribution
in respect of, any of the foregoing.
Shareholder. "Shareholder" shall have the meaning set forth in the
first paragraph of this Agreement.
Stock Purchase and Redemption Agreement. "Stock Purchase and Redemption
Agreement" shall have the meaning set forth in the recitals set forth on the
first page of this Agreement.
Subsidiary. "Subsidiary," with respect to any entity (the "parent"),
shall mean any corporation, firm, association or trust of which such parent, at
the time in respect of which such term is used, (a) owns directly or indirectly
more than fifty percent (50%) of the equity or beneficial interest, on a
consolidated basis, and (b) owns directly or controls with power to vote,
indirectly through one or more Subsidiaries, shares of capital stock or
beneficial interest having the power to cast a majority of the votes entitled to
be cast for the election of directors, trustees, managers or other officials
having powers analogous to that of directors of a corporation. Unless otherwise
specifically indicated, when used herein the term Subsidiary shall refer to a
direct or indirect Subsidiary of the Company.
Synthetic Sale. "Synthetic Sale" shall mean any hedge, sale or purchase
of any derivative security or other action (other than Transfers expressly
permitted by the terms hereof) having the effect of reducing a Shareholder's
economic interest in Shares or reducing a Shareholder's exposure to a decrease
in fair market value of Shares.
Third Party. "Third Party" shall mean any Person other than the
Company.
Transaction Price. "Transaction Price" shall mean $4.39 per Share (as
equitably adjusted for stock dividends, stock splits, reverse stock splits and
other similar reclassifications), which is the price originally paid for each
Share by the Lee Group Shareholders at the time of initial purchase thereof and
giving effect to the
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5 for 1 stock split referred to in the first preamble to this Agreement.
Transfer. "Transfer" shall mean to transfer, sell, assign, pledge,
hypothecate, give, create a security interest in or lien on, place in trust
(voting or otherwise), assign or in any other way encumber or dispose of,
directly or indirectly and whether or not by operation of law or for value, any
Shares.
ARTICLE II
Covenants and Conditions
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Section 2.1 Restrictions on Transfers. No Shareholder may Transfer all
or any part of the Shares owned by such Shareholder other than a Transfer of
Shares which is (i) a Permitted Transfer, (ii) pursuant to a Public Offering,
(iii) for any Lee Group Shareholder or Management Shareholder, made after a
Public Offering, pursuant to a Rule 144 Transaction; provided that no Management
Shareholder shall Transfer, pursuant to any Rule 144 Transaction, an aggregate
number of Shares that, together with all prior Transfers by such Management
Shareholder pursuant to one or more Rule 144 Transactions and Public Offerings,
represents more than (A) the aggregate number of Shares Transferred by the Lee
Group Shareholders other than pursuant to a Permitted Transfer multiplied by (B)
such Management Shareholders' Proportionate Equity Interest, (iv) for any
Non-Management Shareholder, made after a Public Offering, (v) a Transfer by a
Management Shareholder to another Management Shareholder (a "Management
Transfer"); provided that each Management Transfer shall be made in accordance
with the procedures set forth in Sections 2.1(a)-(f), or (vi) pursuant to
another section of this Article II. For purposes of this Section 2.1,
"Proportionate Equity Interest" shall mean the number of Shares set forth on the
Schedule opposite the Management Shareholder's name plus the number of Shares
underlying options granted to such Management Shareholder on the date hereof (to
the extent exercisable) divided by the aggregate number of Shares set forth on
the Schedule opposite the names of the Lee Group Shareholders, in each case as
equitably adjusted to account for stock dividends, stock splits, reverse stock
splits or other similar reclassifications.
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(a) If, at any time after the Anniversary Date, a Management
Shareholder (each, an "Offeror") desires to Transfer Shares to another
Management Shareholder, such Offeror shall give notice of such offer (the
"Transfer Notice") to the Company. The Transfer Notice shall state the terms and
conditions of such offer, including the name of the prospective purchaser, the
proposed purchase price per share of such Shares (the "Offer Price"), payment
terms (including a description of any proposed non-cash consideration), the type
of disposition and the number of such Shares to be transferred ("Offered
Shares"). The Transfer Notice shall further state (i) that the Company may
acquire, in accordance with the provisions of this Agreement, any of the Offered
Shares for the price and upon the other terms and conditions, including deferred
payment (if applicable), set forth therein, and (ii) that the Company may not
purchase any of such Offered Shares unless the Company purchases all of such
Offered Shares.
(b) For a period of thirty (30) business days after receipt of
the Transfer Notice (the "Option Period"), the Company may, by notice in writing
to the Offeror delivering such Transfer Notice, elect in writing to purchase
all, but not less than all, of the Offered Shares at the Offer Price. The
closing of the purchase of Offered Shares pursuant to Section 2.1(b) or Section
2.1(c), as the case may be, shall take place at the principal office of the
Company on the tenth (10th) day after the expiration of the Option Period. At
such Closing, the Company shall deliver to the Offeror, against delivery of
certificates duly endorsed and stock powers representing the Offered Shares
being acquired by the Company, the Offer Price, on the same terms as set forth
in the Transfer Notice (including any non-cash consideration described therein),
payable in respect of the Offered Shares being purchased by the Company. All of
the foregoing deliveries will be deemed to be made simultaneously, and none
shall be deemed completed until all have been completed.
(c) Notwithstanding anything set forth in this Section 2.1 to
the contrary, prior to the termination of the Option Period, the Board of
Directors of the Company (the "Board") may, in its sole discretion, elect to
assign the Company's right to purchase all, but not less than all, of the
Offered Shares pursuant to this
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Section 2.1 to the Lee Group Shareholders. If the Board so elects, the Company
shall give notice of such assignment to each Lee Group Shareholder (the
"Assignment Notice"), indicating the number of Shares each Lee Group Shareholder
is entitled to purchase (including the right to over-allotment of Offered
Shares, if any), the Offer Price of such Shares, and any other relevant payment
terms. Within five (5) business days of the Assignment Notice, those Lee Group
Shareholders who intend to purchase the Offered Shares pursuant to this Section
2.1(c) (the "Offered Shares Electing Shareholders") shall notify the Company in
writing of such intention, indicating the number of Offered Shares (including
over-allotments, if any) they intend to purchase. The right to purchase such
Offered Shares shall be allocated to the Lee Group Shareholders pro rata (based
on the number of Shares each Lee Group Shareholder (together with each such Lee
Group Shareholder's Permitted Transferees) owns in relation to the total number
of Shares owned by all of the Lee Group Shareholders); provided, however, that
if any Lee Group Shareholder does not elect to purchase the number of Offered
Shares which such Lee Group Shareholder (and its Permitted Transferees) may
purchase pursuant to this Section 2.1(c), then the Offered Shares Electing
Shareholders (and their Permitted Transferees) may elect to purchase the
remaining Offered Shares. The right to purchase the remaining Offered Shares
shall be allocated to the Offered Shares Electing Shareholders pro rata (based
on the number of Shares each Offered Shares Electing Shareholder (together with
their Permitted Transferees) owns in relation to the total number of Shares
owned by all of the Offered Shares Electing Shareholders).
(d) If the Company or the Lee Group Shareholders, as the case
may be, do not elect to purchase all of the Offered Shares, all, but not less
than all, of the Offered Shares may be Transferred, but only in accordance with
Sections 2.1(e) and 2.1(f) and the terms of the Transfer Notice, within sixty
(60) days after expiration of the Option Period, after which, if the Offered
Shares have not been Transferred, all restrictions contained herein shall again
be in full force and effect.
(e) Five (5) days prior to the closing of the purchase of any
Offered Shares pursuant to Section 2.1(d) hereof (the "Closing"), the Offeror
shall notify
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the Company of the disposition of the Offered Shares, including the name of each
purchaser and the number of Shares bought by each purchaser. The Closing shall
take place no later than sixty (60) days after the expiration of the Option
Period. At such Closing, each purchaser of Offered Shares shall deliver to the
Offeror, against delivery of certificates duly endorsed and stock powers
representing the Offered Shares being acquired by such purchaser, the Offer
Price, on the same terms as set forth in the Transfer Notice (including any
non-cash consideration described therein), payable in respect of the Offered
Shares being purchased by such purchaser. All of the foregoing deliveries will
be deemed to be made simultaneously, and none shall be deemed completed until
all have been completed.
(f) Any Transfer of Shares pursuant to this Section 2.1 (other
than pursuant to Sections 2.1 (ii), (iii) and (iv)) shall remain subject to the
Transfer restrictions of this Agreement, and each intended transferee pursuant
to this Section shall execute and deliver to the Company a counterpart of this
Agreement, which shall evidence such transferee's agreement that the Shares
intended to be Transferred shall continue to be subject to this Agreement and
that as to such Shares the transferee shall be bound by the restrictions of this
Agreement as a Shareholder hereunder.
Section 2.2 Call by the Company.
(a) If the employment of a Management Shareholder by the
Company or any of its Subsidiaries shall terminate (a "Call Event") prior to the
completion of the Company's initial Public Offering, the Company shall have the
right to purchase (the "Call Option"), by delivery of a written notice (the
"Call Notice") to such terminated Management Shareholder no later than ninety
(90) days after the date of such Call Event, and such Management Shareholder and
such Management Shareholder's Permitted Transferees (the "Call Group") shall be
required to sell all (but not less than all) of the Shares which are owned by
the members of the Call Group on the date of such Call Event (collectively, the
"Call Securities") at a price per share equal to the Call Price (as defined in
Section 2.2(c) below) applicable to such Shares.
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(b) Notwithstanding anything set forth in this Section 2.2 to
the contrary, prior to the exercise of the Call Option by the Company, the Board
may, in its sole discretion, elect to assign the Company's right to exercise the
Call Option to purchase all, but not less than all, of the Call Securities to
the Lee Group Shareholders. If the Board so elects, the Company shall give
notice of such assignment to each Lee Group Shareholder (the "Call Assignment
Notice"), indicating the number of Call Securities each Lee Group Shareholder is
entitled to purchase (including the right to over-allotment of Call Securities,
if any), the Call Price applicable to such Shares and the date of the closing of
such purchase under this Section 2.2. Within five (5) business days of the Call
Assignment Notice, those Lee Group Shareholders who intend to purchase Call
Securities pursuant to this Section 2.2(b) (the "Call Securities Electing
Shareholders") shall notify the Company in writing of such intention, indicating
the number of Call Securities (including over-allotments, if any) they intend to
purchase; provided that, with respect to any Call Assignment Notice given by the
Company to the Lee Group Shareholders on or prior to the Anniversary Date, the
Lee Group Shareholders shall notify the Company of such intention to purchase
Call Securities no later than five (5) business days after the Anniversary Date.
The right to purchase such Call Securities shall be allocated to the Lee Group
Shareholders pro rata (based on the number of Shares each Lee Group Shareholder
(together with each such Lee Group Shareholder's Permitted Transferees) owns in
relation to the total number of Shares owned by all of the Lee Group
Shareholders); provided, however, that if any Lee Group Shareholder does not
elect to purchase the number of Call Securities which such Lee Group Shareholder
(and its Permitted Transferees) may purchase pursuant to this Section 2.2(b),
then the Call Securities Electing Shareholders (and their Permitted Transferees)
may elect to purchase the remaining Call Securities. The right to purchase the
remaining Call Securities shall be allocated to the Call Securities Electing
Shareholders pro rata (based on the number of Shares each Call Securities
Electing Shareholder (together with their Permitted Transferees) owns in
relation to the total number of Shares owned by all of the Call Securities
Electing Shareholders).
(c) For purposes of this Section 2.2, the term "Call Price"
shall mean (i) if the employment of the
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Management Shareholder is terminated for Cause (A) within one (1) year of the
date of this Agreement, the Transaction Price, and (B) subsequent to the date
which is one (1) year from the date of this Agreement, the lower of the
Transaction Price and the fair market value (as determined by the Board) of each
Share; and (ii) if the employment of the Management Shareholder is terminated
other than for Cause or the Management Shareholder voluntarily terminates his or
her employment with the Company or one of its Subsidiaries (A) within one (1)
year of the date of this Agreement, the Transaction Price, and (B) subsequent to
the date which is one (1) year from the date of this Agreement, the fair market
value (as determined by the Board) of each Share. Notwithstanding the foregoing,
in the event that a Management Shareholder who owns at least 91,116 Shares on
the date hereof is entitled to receive the Call Price for his Shares pursuant to
clause (i)(B) or (ii)(B) of this Section 2.2(c) and such Management Shareholder
disputes the Board's determination of fair market value, such Management
Shareholder shall be entitled to have the fair market value of such Shares
determined by an independent appraiser selected by the Company and reasonably
acceptable to such Management Shareholder. Fair market value of Shares shall be
determined in each case without deduction for the fact that the Shares represent
a minority interest in the Company. All costs of any appraisal under this
Section 2.2(c) shall be paid equally by the Company and such Management
Shareholder.
(d) The closing of any purchase of Call Securities pursuant to
Section 2.2(a) or 2.2(b) shall take place at the principal office of the Company
(i) with respect to purchases by the Company or a Designated Employee (as
defined below), on the tenth (10th) business day after the date of the Call
Notice and (ii) with respect to any Lee Group Shareholder, on the tenth (10th)
business day after notifying the Company in writing of its intention to exercise
its right to purchase pursuant to Section 2.2(b). At such closing, the Company,
the Lee Group Shareholders or the Designated Employee, as the case may be, shall
deliver to the Call Group, against delivery of certificates duly endorsed and
stock powers representing the Call Securities, a certified check or checks
payable to the Management Shareholder and/or the Permitted Transferees, as the
case may be, in an amount equal to the aggregate Call Price payable in respect
of such Call Securities. All of the foregoing deliveries
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will be deemed to be made simultaneously and none shall be deemed completed
until all have been completed.
(e) Notwithstanding anything set forth in this Section 2.2 to
the contrary, prior to the exercise by the Company of its Call Option to
purchase Call Securities pursuant to this Section 2.2, one or more new or
existing employees of the Company or any of its Subsidiaries may, in the sole
discretion of the Board, be designated by the Board (individually a "Designated
Employee" and collectively, "Designated Employees") who shall have the right,
but not the obligation, to exercise the Call Option and to acquire, in lieu of
the Company, some or all (as determined by the Company) of the Call Securities
that the Company is entitled to purchase from the Call Group hereunder, for cash
and on the same terms and conditions as set forth in Section 2.2(d) which apply
to the repurchase of Call Securities by the Company. Concurrently with any such
purchase of Call Securities by any such Designated Employee, such Designated
Employee who is not already a Management Shareholder shall execute a counterpart
of this Agreement whereupon such Designated Employee shall be deemed a
"Management Shareholder" and shall have the same rights and be bound by the same
obligations as a Management Shareholder hereunder.
(f) Subject to Section 2.2(b), if neither the Company nor any
Designated Employee elect to exercise the Call Option and deliver a Call Notice
within ninety (90) days of a Call Event, then the Call Option provided in this
Section 2.2 shall terminate, but the Management Shareholder or his Permitted
Transferees shall continue to hold such Call Securities pursuant to all of the
other provisions of this Agreement.
Section 2.3 Come Along. Except as provided in Section 2.3(c) hereof,
the Lee Group Shareholders shall not Transfer Shares to a Third Party who is not
a Permitted Transferee without complying with the terms and conditions set forth
in Sections 2.3(a) and 2.3(b) below.
(a) Any Lee Group Shareholder, when desiring to Transfer
Shares (the "Transferor"), shall give not less than seven (7) days prior written
notice of such intended Transfer to each other Shareholder and to the Company.
Such notice (the "Participation Notice") shall set forth the terms and
conditions of such proposed Transfer, including the name of the prospective
transferee,
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the number of Shares proposed to be transferred (the "Participation Securities")
by the Transferor, the purchase price per Share proposed to be paid therefor and
the payment terms and type of transfer to be effectuated. Within five (5) days
following the delivery of the Participation Notice by the Transferor to each
other Shareholder and to the Company, each Shareholder desiring to participate
in such proposed Transfer (each, a "Participating Offeree") shall, by notice in
writing to the Transferor and to the Company, have the opportunity and right to
sell to the purchasers in such proposed Transfer (upon the same terms and
conditions as the Transferor) up to that number of Shares owned by such
Participating Offeree as shall equal the product of (i) a fraction, the
numerator of which is the number of Shares owned by such Participating Offeree
as of the date of such proposed Transfer and the denominator of which is the
aggregate number of Shares actually owned as of the date of such Participation
Notice by the Transferor and by all Participating Offerees, multiplied by (ii)
the number of Participation Securities. The amount of Participation Securities
to be sold by the Transferor shall be reduced to the extent necessary to provide
for such sales of Shares by Participating Offerees.
(b) At the closing of any proposed Transfer in respect of
which a Participation Notice has been delivered, the Transferor, together with
all Participating Offerees, shall deliver to the proposed transferee
certificates evidencing the Shares to be sold thereto duly endorsed with stock
powers and shall receive in exchange therefor the consideration to be paid or
delivered by the proposed transferee in respect of such Shares as described in
the Participation Notice.
(c) The provisions of this Section 2.3 shall not apply to (i)
any Permitted Transfer, (ii) any Transfer pursuant to or following a Public
Offering or (iii) any Transfer pursuant to Section 2.2 or 2.4.
(d) The provisions of this Section 2.3 shall be construed in
accordance with Section 14(e) of the Warrant Agreement dated as of the date
hereof among the Company, RC Funding, Inc. and Bank of America National Trust
and Savings Association (the "Warrant Agreement").
14
Section 2.4 Take Along.
(a) If a Lee Group Shareholder or group of Lee Group
Shareholders holding more than 50% of the then outstanding Shares (the "Take
Along Group") determine to sell or exchange (in a business combination or
otherwise), in one or a series of bona fide arms-length transactions to a Third
Party who is not an Affiliate of the Take Along Group, 50% or more of the
aggregate number of Shares owned by the Lee Group Shareholders on the date
hereof (as equitably adjusted to account for stock dividends, stock splits,
reverse stock splits or other similar reclassifications), then, upon five (5)
days written notice by the Take Along Group to each other Shareholder, which
notice shall include reasonable details of the proposed sale or exchange
including the proposed time and place of closing and the consideration to be
received by the Take Along Group (such notice being referred to as the "Sale
Request"), each other Shareholder (each, a "Seller") shall be obligated to, and
shall sell, transfer and deliver, or cause to be sold, transferred and
delivered, to such Third Party on the same terms as the Take Along Group, that
number of Shares owned by such Seller as shall equal the product of (A) a
fraction, the numerator of which is the number of Shares proposed to be
transferred by the Take Along Group as of the date of such Sale Request and the
denominator of which is the aggregate number of Shares actually owned as of the
date of such Sale Request by the Take Along Group, multiplied by (B) the number
of Shares actually owned as of the date of such Sale Request by such Seller.
Each Seller shall (i) deliver certificates for all of its Shares at the closing
of the proposed Transfer, free and clear of all claims, liens and encumbrances
and (ii) if shareholder approval of the transaction is required, vote his or its
Shares in favor thereof.
(b) The provisions of this Section 2.4 shall not apply to (i)
any Transfer pursuant to or following a Public Offering or (ii) a Permitted
Transfer.
(c) The provisions of this Section 2.4 shall be construed in
accordance with Section 14(f) of the Warrant Agreement.
15
Section 2.5 Preemptive Rights.
(a) Preemptive Rights. The Company hereby grants to each
Shareholder so long as it shall own any Shares or, if sooner, until a Public
Offering, the right to purchase up to a pro rata portion of New Securities (as
defined in paragraph (b) below) which the Company, from time to time, proposes
to sell or issue following the date hereof. A Shareholder's pro rata portion,
for purposes of this Section 2.5, is the product of (i) a fraction, the
numerator of which is the number of outstanding Shares which such Shareholder
then owns and the denominator of which is the total number of Shares of Common
Stock then actually outstanding on a fully diluted basis after giving effect to
the exercise of all options, warrants and the like and the conversion of all
securities convertible into or exchangeable for Common Stock, multiplied by (ii)
the number of New Securities the Company proposes to sell or issue.
(b) Definition of New Securities. "New Securities" shall mean
any Common Stock of the Company, whether now authorized or not, any rights,
options or warrants to purchase Common Stock and any indebtedness or preferred
stock of the Company which is convertible into Common Stock (or which is
convertible into a security which is, in turn, convertible into Common Stock);
provided that the term "New Securities" does not include (i) indebtedness of the
Company; (ii) Common Stock issued as a stock dividend to all holders of Common
Stock pro rata or upon any subdivision or combination of shares of Common Stock;
(iii) the issuance and sale of securities of the Company pursuant to a Public
Offering or merger, consolidation or similar share exchange; (iv) any director,
officer, employee or consultant stock options approved by the Board of Directors
of the Company; (v) the issuance of any Common Stock upon the exercise or
conversion of any rights, options or warrants to purchase Common Stock; (vi) the
issuance and sale of up to an aggregate of 227,791 shares of Common Stock (as
equitably adjusted for stock dividends, stock splits, reverse stock splits and
other similar reclassifications) on or prior to the Anniversary Date to newly
hired officers (but not the chief executive officer) or employees of the Company
for a per share price no less than the Transaction Price; provided that such
officers or employees shall execute a counterpart of this Agreement as
Management Shareholders;
16
or (vii) the issuance of any equity security issued to non-Affiliates of the
Company as part of a bona fide debt offering of investment units comprised of
such equity security and a debt security of the Company or the issuance of
Common Stock upon the conversion of such equity security pursuant to its terms.
(c) Notice from the Company. In the event the Company proposes
to issue New Securities, the Company shall give each Shareholder who has a
preemptive right under this Section 2.5 written notice of such proposal,
describing the type of New Securities and the price and the terms upon which the
Company proposes to issue the same. For a period of five (5) days following the
delivery of such notice by the Company, the Company shall be deemed to have
irrevocably offered to sell to each Shareholder its pro rata share of such New
Securities for the price and upon the terms specified in the notice. Each
Shareholder may exercise its preemptive rights hereunder by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(d) Sale by the Company. In the event any Shareholder who has
a preemptive right under this Section 2.5 fails to exercise in full its
preemptive right within said five (5) day period, the Company shall have one (1)
year thereafter to sell the New Securities with respect to which the preemptive
right was not exercised, at a price and upon terms no more favorable to the
purchasers thereof than specified in the Company's notice given pursuant to
Section 2.5(c).
(e) Closing. The closing for any such issuance shall take
place as proposed by the Company with respect to the Shares to be issued, at
which closing the Company shall deliver certificates for the shares in the
respective names of the purchasing Shareholders against receipt of payment
therefor.
Section 2.6 Restrictions on Other Agreements. Until the completion
of a Public Offering by the Company, no Shareholder shall grant any proxy or
enter into or agree to be bound by any voting trust with respect to the Shares,
nor shall any Shareholder enter into any shareholders agreements or arrangements
of any kind with any person with respect to the Shares on terms which conflict
with the provisions of this Agreement (whether
17
or not such agreements and arrangements are with other Shareholders), including,
but not limited to, agreements or arrangements with respect to the acquisition,
disposition or voting of Shares inconsistent herewith.
Section 2.7 Synthetic Sales. Any Synthetic Sales by a Management
Shareholder then employed by the Company or any of its Subsidiaries shall
require the prior written approval of the Board.
ARTICLE III
Registration Rights
-------------------
Section 3.1 General. For purposes of Article III: (a) the terms
"register", "registered" and "registration" refer to a registration effected by
preparing and filing a registration statement in compliance with the 1933 Act
and the declaration or ordering of effectiveness of such registration statement;
and (b) the term "Holder" means any Shareholder or Permitted Transferee thereof.
Section 3.2 Demand Registrations.
(a) If the Company shall receive a written request (specifying
that it is being made pursuant to this Section 3.2) from the Lee Group
Shareholders, made at a time when the Lee Group Shareholders and their Permitted
Transferees own in the aggregate at least 10% of the Purchased Shares (as that
term is defined in the Stock Purchase and Redemption Agreement), that the
Company file a registration statement under the 1933 Act, or a similar document
pursuant to any other statute then in effect corresponding to the 1933 Act,
covering the registration of Common Stock, then the Company shall, not later
than ninety (90) days after receipt by the Company of a written request for a
demand registration pursuant to this Section 3.2, file a registration statement
with the Securities and Exchange Commission (the "SEC") relating to such
Registrable Securities as to which such request for a demand registration
relates (the "Requested Shares"), and the Company shall use its best efforts to
cause the offering of such Requested Shares to be registered under the 1933 Act.
The Company shall be obligated to effect only three (3) registrations of
Registrable Securities pursuant to this Section 3.2; provided, however, that if
the Lee Group Shareholders and their Permit-
18
ted Transferees own at least 10%, but not more than 25%, of the Purchased
Shares, then the Company shall be obligated to effect only one (1) such
registration of Registrable Securities.
(b) If, pursuant to Section 3.3, the total amount of
securities that all Holders and all other holders of securities which have
applicable registration rights request to be included in an offering made
pursuant to this Section 3.2 exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the offering,
then the Company will include in such registration only the number of securities
which, in the good faith opinion of such underwriters, can be sold, selected
from the securities requested to be included by all Holders and such other
holders pro rata based on the number of securities which each of them owns.
Section 3.3 Piggyback Registration. If, at any time, the Company
determines to register, whether for its own account or pursuant to a request by
the Lee Group Shareholders pursuant to Section 3.2, any of its equity securities
(including securities convertible into equity securities, but excluding equity
securities being registered pursuant to a registration statement on Form S-8 and
equity securities issued in connection with mezzanine debt or senior bank
financing of the Company, whether pursuant to the Stock Purchase and Redemption
Agreement or placed or sold in the future, or equity securities issued upon
conversion or exchange thereof), for its own account or for the account of
others under the 1933 Act in connection with the public offering of such
securities (other than the first Public Offering), the Company shall, at each
such time, promptly give each Holder written notice of such determination no
later than ten (10) days before the effective date of any such registration.
Upon the written request of any Holder received by the Company within five (5)
days after the giving of any such notice by the Company, the Company shall use
its best efforts to cause to be registered under the 1933 Act all of the
Registrable Shares of each Holder that such Holder has requested be registered.
If the total amount of securities that are to be included by either the Company
(or other person (including any Shareholder) for whose account the registration
is made) for its own account and at the request of Holders pursuant to this
Section 3.3 and all other holders of securities which
19
have applicable registration rights exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the offering,
then the Company will include in such registration only the number of securities
which in the opinion of such underwriters can be sold, selected from the
securities requested to be included by all Holders and all such other holders
pro rata based on the number of securities which each of them owns. The rights
afforded to the Holders pursuant to this Section 3.3 are subject to the
provisions of Section 14(b) of the Warrant Agreement.
Section 3.4 Obligations of the Company.
(a) Whenever required under Section 3.2 or 3.3 hereof to use
its best efforts to effect the registration of any Registrable Securities, the
Company shall:
(1) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to
become and remain effective, including, without limitation,
filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the
registration statement current; provided, however, that if
such registration statement does not become effective, then
any demand registration pursuant to Section 3.2 prompting such
undertaking by the Company shall be deemed to be rescinded and
retracted and shall not be counted as, or deemed or considered
to be or to have been, a demand registration pursuant to
Section 3.2 for any purpose;
(2) as expeditiously as reasonably possible, prepare
and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
statement and to keep each registration and qualification
under this Agreement effective (and in compliance with the
1933 Act)
20
by such actions as may be necessary or appropriate for a
period of up to 180 days (if, in the reasonable discretion of
the Holders owning securities covered by such registration
statement, such period of time is necessary for the successful
completion of the offering of such securities) after the
effective date of such registration statement, all as
requested by such Holders;
(3) as expeditiously as reasonably possible, furnish
to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they
may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them;
(4) as expeditiously as reasonably possible, use its
best efforts to register and qualify the securities covered by
such registration statement under such securities or "blue
sky" laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered by
the registration statement, provided that the Company shall
not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent
to service of process in any such jurisdiction, and further
provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if
any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne
by selling shareholders, then such expenses shall be payable
by selling shareholders pro rata to the extent required by
such jurisdiction;
(5) use its best efforts to cause all Registrable
Securities covered by such registration statement to be
registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the
seller or sellers thereof to consum-
21
mate the disposition or such Registrable Securities;
(6) notify each seller of Registrable Securities
covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under
the 1933 Act, upon discovery that, or upon the happening of
any event as a result of which, the prospectus included in
such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request
of any such seller or Holders promptly prepare to furnish to
such seller or Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers
of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made;
(7) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least twelve (12) months, but not more than eighteen (18)
months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
1933 Act, and will furnish to each such seller at least two
(2) business days prior to the filing thereof a copy of any
post-effective amendment or supplement to such registration
statement or prospectus and shall not file any thereof to
which any such seller shall have reasonably objected, except
to the extent required by law, on the grounds that such
amendment or supplement does
22
not comply in all material respects with the requirements of
the 1933 Act or of the rules or regulations thereunder;
(8) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by
such registration statement from and after a date not later
than the effective date of such registration statement; and
(9) use its best efforts to list all Registrable
Securities covered by such registration statement on any
securities exchange on which any class of Registrable
Securities is then listed.
(b) The Company will furnish to each Holder on whose behalf
Registrable Securities have been registered pursuant to this Agreement a signed
counterpart, addressed to such Holder, of an opinion of counsel for the Company
dated the effective date of such registration statement, and such opinion of
counsel shall cover those matters which are customarily covered in opinions of
issuer's counsel delivered to underwriters in connection with underwritten
public offerings of securities.
(c) Except as otherwise set forth in Section 3.3, if the
Company at any time proposes to register any of its securities under the 1933
Act, whether or not for sale for its own account, and such securities are to be
distributed by or through one or more underwriters, then the Company will make
reasonable efforts, if requested by any Holder of Registrable Securities who
requests registration of Registrable Securities in connection therewith pursuant
to Section 3.2 or 3.3 hereof, to arrange for such underwriters to include such
Registrable Securities among the securities to be distributed by or through such
underwriters.
(d) In connection with the preparation and filing of each
registration statement registering Registrable Securities under this Agreement,
the Company will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to partici-
23
pate in the preparation of such registration statement, each prospectus included
therein or filed with the SEC, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified its financial
statements, as shall be necessary, in the opinion of such Holders or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the 1933 Act.
Section 3.5 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Article III that
the Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
Section 3.6 Expenses of Registration. All expenses incurred in
connection with a registration pursuant to Section 3.2 or 3.3 hereof (excluding
underwriters' discounts and commissions, which shall be borne by the sellers),
including without limitation all registration and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders (which
counsel shall be selected by a majority in interest of such Holders) shall be
borne by the Company.
Section 3.7 Underwriting Requirements. In connection with any
registration of Registrable Securities under this Agreement, the Company will,
if requested by the underwriters for any Registrable Securities included in such
registration, enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company, and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, provisions relating to indemnification and contribution. The
Holders on whose behalf Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwrit-
24
ing agreement, and the representations and warranties by the Company and the
other agreements on the part of the Company to and for the benefit of such
underwriters shall be also made to and for the benefit of such Holders of
Registrable Securities. The Company shall use its reasonable best efforts to
cause the underwriting agreement to comply with Section 3.8. Such underwriters
shall be selected (i) by the Company, in the case of a registration pursuant to
Section 3.3, or (ii) by the Holders requesting a demand registration, in the
case of a registration pursuant to Section 3.2.
Section 3.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under Article III:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder requesting or joining in a registration,
any underwriter (as defined in the 1933 Act) for it, and each person, if any,
who controls such Holder or such underwriter within the meaning of the 1933 Act,
from and against any losses, claims, damages, expenses (including reasonable
attorneys' fees and expenses and reasonable costs of investigation) or
liabilities, joint or several, to which they or any of them may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based on any untrue or
alleged untrue statement of any material fact contained in such registration
statement including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or arise out of any alleged violation by the Company of any rule or
regulation promulgated under the 1933 Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration; provided, however, that the indemnity agreement contained in this
Section 3.8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable to anyone for any such loss claim,
25
damage, liability or action to the extent that it arises out of or is based upon
an untrue statement or omission made in connection with such registration
statement, preliminary prospectus, final prospectus or amendments or supplements
thereto in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder,
underwriter or control person. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Holder,
underwriter or control person and shall survive the transfer of such securities
by such Holder.
(b) To the fullest extent permitted by law, each Holder
requesting or joining in a registration will indemnify and hold harmless the
Company, as the case may be, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, and each agent and any underwriter for the
Company and any person who controls any such agent or underwriter and each other
Holder and any person who controls such Holder (within the meaning of the 1933
Act) against any losses, claims, damages or liabilities to which the Company or
any such director, officer, control person, agent, underwriter, or other Holder
may become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon an untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
omission was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder with respect to
such Holder expressly for use in connection with such registration; and such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, control person, agent, underwriter, or
other Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity obligation
26
of each such Holder hereunder shall be limited to and shall not exceed the
proceeds actually received by such Holder upon a sale of Registrable Securities
pursuant to a registration statement hereunder; and provided, further, that the
indemnity agreement contained in this Section 3.8(b) shall not apply to amounts
paid in settlements effected without the consent of such Holder (which consent
shall not be unreasonably withheld). Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer, Holder, underwriter or control person and shall
survive the transfer of such securities by such Holder.
(c) Any person seeking indemnification under this Section 3.8
will (i) give prompt notice to the indemnifying party of any claim with respect
to which it seeks indemnification (but the failure to give such notice will not
affect the right to indemnification hereunder, unless the indemnifying party is
materially prejudiced by such failure) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest may exist between such
indemnified and indemnifying parties with respect to such claim, permit such
indemnifying party, and other indemnifying parties similarly situated, jointly
to assume the defense of such claim with counsel reasonably satisfactory to the
parties. In the event that the indemnifying parties cannot mutually agree as to
the selection of counsel, each indemnifying party may retain separate counsel to
act on its behalf and at its expense. The indemnified party shall in all events
be entitled to participate in such defense at its expense through its own
counsel. If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
27
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional counsel.
(d) If for any reason the foregoing indemnification is
unavailable to any party or insufficient to hold it harmless as and to the
extent contemplated by the preceding paragraphs of this Section 3.8, then each
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage, expense or liability
in such proportion as is appropriate to reflect the relative benefits received
by the Company, on the one hand, and the applicable indemnified party, as the
case may be, on the other hand, and also the relative fault of the Company and
any applicable indemnified party, as the case may be, as well as any other
relevant equitable considerations.
Section 3.9 Lock-Up Agreement. If required by the underwriter, each
Shareholder agrees not to sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Company held by such Shareholder (other than
securities included in the applicable registration statement or shares purchased
in the public market after the effective date of registration) or any interest
or future interest therein during such period (not to exceed 180 days) as is
acceptable to the underwriter following the effective date of each registration
statement of the Company filed under the 1933 Act which includes securities to
be sold to the public in an underwritten offering. The Company may impose stop
transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said period.
Section 3.10 No Inconsistent Agreements. The Company agrees that it
has not entered into, and it will not hereafter enter into, any agreement with
respect to the registration of its securities that is inconsistent with (or
superior to) the rights granted to the Holders of Registrable Securities in this
Agreement.
28
Section 3.11 Stock Split and Reverse Stock Split. If, on or after the
receipt by the Company of a request for registration of a public offering
pursuant to Section 3.2 hereof, the proposed managing underwriter or
underwriters of such offering reasonably believes that the number of shares to
be registered is not the number necessary for the success of such offering, the
Company shall use its best efforts to cause each share of its outstanding Common
Stock to be converted into such number of shares of such Common Stock so that
the number of shares of Registrable Securities to be registered is equal to the
number which such managing underwriter or underwriters reasonably believes is
necessary for the success of such offering. If necessary in connection
therewith, the Company shall use its best efforts to cause to be recommended,
approved and adopted by its Board of Directors and approved and adopted by its
shareholders, and, if so approved and adopted, file and cause to become
effective, an amendment to its articles of incorporation increasing the number
of shares of Common Stock which the Company is authorized to issue. Each
Shareholder, together with its Permitted Transferees, hereby agrees to vote the
Shares held by it in favor of adopting such amendment.
29
ARTICLE IV
Miscellaneous
-------------
Section 4.1 Remedies. The parties to this Agreement acknowledge and
agree that the covenants of the Company and the Shareholders set forth in this
Agreement may be enforced in equity by a decree requiring specific performance.
In the event of a breach of any material provision of this Agreement, the
aggrieved party will be entitled to institute and prosecute proceedings in any
court of competent jurisdiction to enforce specific performance of such
provision, as well as to obtain damages for breach of this Agreement. Without
limiting the foregoing, if any dispute arises concerning the sale or other
disposition of any of the Shares subject to this Agreement or concerning any
other provisions hereof or the obligations of the parties hereunder, the parties
to this Agreement agree that an injunction may be issued in connection therewith
(including, without limitation, restraining the sale or other disposition of
such Shares or rescinding any such sale or other disposition). Such remedies
shall be cumulative and non-exclusive and shall be in addition to any other
rights and remedies the parties may have under this Agreement or otherwise.
Section 4.2 Entire Agreement; Amendment; Waiver. This Agreement,
together with the Schedule hereto, sets forth the entire understanding of the
parties, and as of the closing contemplated by the Stock Purchase and Redemption
Agreement supersedes all prior agreements and all other arrangements and
communications, whether oral or written, with respect to the subject matter
hereof, including, without limitation, the rights and obligations of the
Existing Shareholders under the Prior Shareholders Agreement, and each Existing
Shareholder hereby waives all of its rights under the Prior Shareholders
Agreement and hereby cancels the Prior Shareholders Agreement. The Schedule may
be amended to reflect changes in the composition of the Shareholders and changes
in stock ownership that may occur from time to time as a result of Permitted
Transfers or Transfers permitted under Article II hereof. Amendments to the
Schedule reflecting Permitted Transfers or Transfers permitted under Article II
hereof shall become effective when a copy of this Agreement, as executed by any
new transferee, is filed with the Company, except as other-
30
wise provided in Section 4.13 hereof. Any other amendments to, or the
termination of, this Agreement shall require the prior written consent of a
majority in interest of the Shareholders. Notwithstanding the preceding
sentence, no amendment may adversely affect the Lee Group Shareholders, the
Non-Management Shareholders or the Management Shareholders at any time, unless
consented to in writing by a majority in interest of such adversely affected
group. Notwithstanding any provisions to the contrary contained herein, any
party may waive any rights with respect to which such party is entitled to the
benefits under this Agreement. No waiver of or consent to any departure from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof.
Section 4.3 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provision were omitted.
Section 4.4 Notices. All notices and other communications necessary or
contemplated under this Agreement shall be in writing and shall be delivered in
the manner specified herein or, in the absence of such specification, shall be
deemed to have been duly given three (3) business days after mailing by
certified mail, when delivered by hand, upon confirmation of receipt by
telecopy, or one (1) day after sending by overnight delivery service, to the
respective addresses of the parties set forth below:
(a) For notices and communications to the Existing
Shareholders, to the respective addresses set forth in the Schedule;
(b) for notices and communications to the Company:
Rayovac Corporation
601 Rayovac Drive
Madison, Wisconsin 53711-2497
Attn: President
Facsimile No.: (608) 278-6666
31
(c) for notices and communications to the Lee Group
Shareholders, to the respective addresses set forth in the Schedule, with a copy
to:
Skadden, Arps, Slate,
Meagher & Flom
One Beacon Street
Boston, MA 02108
Attention: Louis A. Goodman, Esq.
Facsimile No.: (617) 573-4822
By notice complying with the foregoing provisions of this Section 4.4, each
party shall have the right to change the mailing address for future notices and
communications to such party.
Section 4.5 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and to their
respective transferees, successors and assigns; provided, however, that the
rights under this Agreement may not be assigned except as expressly provided
herein, it being understood that the Company's rights hereunder may be assigned
by the Company to any corporation which is the surviving entity in a merger,
consolidation or like event involving the Company. No such assignment shall
relieve an assignor of its obligations hereunder.
Section 4.6 Governing Law. This Agreement shall be governed by the
laws of the Commonwealth of Massachusetts (regardless of the laws that might
otherwise govern under applicable Massachusetts principles of conflicts of law)
as to all matters, including but not limited to matters of validity,
construction, effect, performance and remedies.
Section 4.7 Termination. Without affecting any other provision of this
Agreement requiring termination of any rights in favor of any Shareholder,
Permitted Transferee or any other transferee of Shares, the provisions of
Articles II and III of this Agreement shall terminate as to such Shareholder,
Permitted Transferee or other transferee, when, pursuant to and in accordance
with this Agreement such Shareholder, Permitted Transferee or other transferee
as the case may be, no longer own any Shares; provided that termination pursuant
to this Section 4.7 shall only occur in respect of a Shareholder after all
Permitted Transferees in respect thereof also
32
no longer own any Shares. As provided above, the provisions of Sections 2.3,
2.4, 2.5 and 2.6 shall not apply to the Shares owned by Shareholders following a
Public Offering.
Section 4.8 Recapitalization, Exchanges, Etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to
Shares, to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Shares, by reason of a stock dividend, stock split, stock
issuance, reverse stock split, combination, recapitalization, reclassification,
merger, consolidation or otherwise.
Section 4.9 Lee Group Shareholder Representative. Each Lee Group
Shareholder hereby designates and appoints (and each Permitted Transferee of
each such Lee Group Shareholder is hereby deemed to have so designated and
appointed) each of Scott A. Schoen and Warren C. Smith, Jr., as his
attorney-in-fact with full power of substitution for each of them (the "Lee
Group Shareholder Representative"), to serve as the representative of each such
person to perform all such acts as are required, authorized or contemplated by
this Agreement to be performed by such person and hereby acknowledges that the
Lee Group Shareholder Representative shall be the only person authorized to take
any action so required, authorized or contemplated by this Agreement by each
such person. Each such person further acknowledges that the foregoing
appointment and designation shall be deemed to be coupled with an interest and
shall survive the death or incapacity of such person. Each such person hereby
authorizes (and each such Permitted Transferee shall be deemed to have
authorized) the other parties hereby to disregard any notice or other action
taken by such person pursuant to this Agreement except for the Lee Group
Shareholder Representative. The other parties hereto are and will be entitled to
rely on any action so taken or any notice given by the Lee Group Shareholder
Representative and are and will be entitled and authorized to give notices only
to the Lee Group Shareholder Representative for any notice contemplated by this
Agreement to be given to any such person. A successor to the Lee Group
Shareholder Representative may be chosen by a majority in interest of the Lee
Group Shareholders, provided that
33
notice thereof is given by the new Lee Group Shareholder Representative to the
Company and to each other Shareholder.
Section 4.10 Action Necessary to Effectuate the Agreement. The parties
hereto agree to take or cause to be taken all such corporate and other action as
may be necessary to effect the intent and purposes of this Agreement.
Section 4.11 Purchase for Investment; Legend on Certificate. Each of
the parties acknowledges that all of the Shares held by such party are being (or
have been) acquired for investment and not with a view to the distribution
thereof and that no Transfer of Shares may be made except in compliance with
applicable federal and state securities laws. Each of the certificates of Shares
of the Company which are now or hereafter owned by the Shareholders and which
are subject to the terms of this Agreement shall have endorsed in writing,
stamped or printed, thereon the following legend:
"The shares represented by this stock certificate are subject to the
terms and conditions, including restrictions on transfer, of a Shareholders
Agreement dated as of September 12, 1996, as amended from time to time. A copy
of the Shareholders Agreement is on file with the Secretary of the Company and
will be mailed to any properly interested person without charge upon the
Company's receipt of a written request therefor. Any sale or transfer in
violation of said Agreement shall be null and void."
All certificates of Shares shall also bear all legends required by
federal and state securities laws.
Section 4.12 Effectiveness of Transfers. All Shares Transferred by a
Shareholder (other than pursuant to an effective registration statement under
the 1933 Act or pursuant to a Rule 144 Transaction) shall, except as otherwise
expressly stated herein, be held by the transferee thereof pursuant to this
Agreement. Such transferee shall, except as otherwise expressly stated herein,
have all the rights and be subject to all of the obligations of a Shareholder
under this Agreement (as through such party had so agreed pursuant to Section
4.13 hereof) automatically and without requiring any further act by such
transferee or by any parties to this Agreement.
34
Without affecting the preceding sentence, if such transferee is not a
Shareholder on the date of such Transfer, then such transferee, as a condition
to such Transfer, shall confirm such transferee's obligations hereunder in
accordance with Section 4.13 hereof. No Shares shall be Transferred on the
Company's books and records, and no Transfer of Shares shall be otherwise
effective, unless any such Transfer is made in accordance with the terms and
conditions of this Agreement, and the Company is hereby authorized by all of the
Shareholders to enter appropriate stop transfer notations and its transfer
records to give effect to this Agreement.
Section 4.13 Additional Shareholders. Subject to the restrictions on
Transfers of Shares contained herein, any Person who is not already a
Shareholder acquiring Shares (except for transferees acquiring Shares in an
offering registered under the 1933 Act or in a Rule 144 Transaction and except
as otherwise permitted by the Board), shall, on or before the Transfer or
issuance to it of Shares, sign a counterpart signature page hereto in form
reasonably satisfactory to the Company and shall thereby become a party to this
Agreement to be bound hereunder as (a) a Management Shareholder if a Permitted
Transferee or an employee of the Company or any of its Subsidiaries, (b) a Lee
Group Shareholder if a Permitted Transferee or an employee or affiliate of
Thomas H. Lee Company or Equity Fund or (c) a Non-Management Shareholder if such
person or entity does not fall within either (i) or (ii) above; provided that a
transferee which is a Permitted Transferee under clause (b) of the definition of
Permitted Transferee shall not be obligated to so agree until foreclosure on its
pledge.
Section 4.14 No Waiver. No course of dealing and no delay on the part
of any party hereto in exercising any right, power or remedy conferred by this
Agreement shall operate as waiver thereof or otherwise prejudice such party's
rights, powers and remedies. No single or partial exercise of any rights, powers
or remedies conferred by this Agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Section 4.15 Financial Statements. The Company will provide Thomas F.
Pyle, Jr. with a copy of the regularly prepared monthly financial statements of
the Company provided to the Company's principal lender at
35
the time provided to such lender and a copy of the quarterly and annual
financial statements of the Company at the time filed with the SEC. The
provisions of this Section 4.15 shall not apply (i) after a Public Offering or
(ii) when Thomas F. Pyle, Jr. and his Associates cease to own 50% of the Shares
owned by them on the date hereof (as equitably adjusted to account for stock
dividends, stock splits, reverse stock splits or other similar
reclassifications), whichever first occurs.
Section 4.16 Counterpart. 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, and all signatures need
not appear on any one counterpart.
Section 4.17 Headings. All headings and captions in this Agreement are
for purposes of reference only and shall not be construed to limit or affect the
substance of this Agreement.
Section 4.18 Number; Gender. When the context so requires, the
singular shall include the plural and the plural shall include the singular and
the gender of any pronoun shall include the other gender.
36
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the date and year first above written.
RAYOVAC CORPORATION
By: /s/ David A. Jones
--------------------------
Name: David A. Jones
Title: Director
37
Lee Group Shareholders:
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL EQUITY ADVISORS III
LIMITED PARTNERSHIP,
as General Partner
By: THL EQUITY TRUST III,
as General Partner
By: /s/ Warren C. Smith, Jr.
-----------------------------
Name: Warren C. Smith, Jr.
Title: Trustee
THOMAS H. LEE FOREIGN FUND III, L.P.
By: THL EQUITY ADVISORS
III LIMITED PARTNERSHIP,
as General Partner
By: THL EQUITY TRUST III,
as General Partner
By: /s/ Warren C. Smith, Jr.
----------------------------
Name: Warren C. Smith, Jr.
Title: Trustee
38
Lee Group Shareholders (continued):
THL-CCI LIMITED PARTNERSHIP
By: /s/ Warren C. Smith, Jr.
----------------------------
Warren C. Smith, Jr., as
agent and attorney-in-fact
under Purchaser Appoint-
ment of Agent and Power of
Attorney dated September
3, 1996 of THL-CCI Limited
Partnership
39
Management Shareholders:
Roger F. Warren
Trygve Lonnebotn
James A. Broderick
Gary E. Wilson
Kenneth V. Biller
Dale R. Tetzlaff
Russell E. Lefevre
Raymond L. Balfour
Arthur Homa
By: /s/ Thomas F. Pyle, Jr.
----------------------------
Thomas F. Pyle, Jr., as
agent and attorney-in-fact
under Shareholder Appoint-
ment of Agent and Power of
Attorney dated March 1,
1996 executed by each of
the Redemption Sharehold-
ers (as defined in the
Stock Purchase and Redemp-
tion Agreement), and not
in his individual capacity
40
Management Shareholders (continued):
/s/ David A. Jones
--------------------------------
David A. Jones
41
Non-Management Shareholders:
Thomas F. Pyle, Jr.
Marvin G. Siegert
Robert W. Zimmerman
By: /s/ Marvin G. Siegert
----------------------------
Marvin G. Siegert, as
agent and attorney-in-fact
under Shareholder Appoint-
ment of Agent and Power of
Attorney dated March 1,
1996 executed by each of
the Redemption Sharehold-
ers (as defined in the
Stock Purchase and Redemp-
tion Agreement), and not
in his individual capacity
42
SCHEDULE OF SHAREHOLDERS
==========================================================================================================
Number of Shares of
Shareholder Common Stock Owned
==========================================================================================================
Thomas H. Lee Equity Fund III, L.P. 13,864,135
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
==========================================================================================================
Thomas H. Lee Foreign Fund III, L.P. 858,950
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
==========================================================================================================
THL-CCI Limited Partnership 1,457,405
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
==========================================================================================================
David A. Jones 227,895
2910 Coles Way
Atlanta, GA 30350
==========================================================================================================
Roger F. Warren 569,735
505 Summit Road
Madison, WI 53704
==========================================================================================================
Marvin G. Siegert 205,105
7518 Red Fox Trail
Madison, WI 53717
==========================================================================================================
Trygve Lonnebotn 410,210
1157 Amherst Drive
Madison, WI 53705
==========================================================================================================
James A. Broderick 205,105
102 Glen Thistle Road
Madison, WI 53705
==========================================================================================================
Gary E. Wilson 113,945
W12035 Baltic Avenue
Merrimac, WI 53561
==========================================================================================================
Robert W. Zimmerman 45,580
N2747 Brown Lane
Waupaca, WI 54981
==========================================================================================================
Kenneth V. Biller 91,160
7318 Old Sauk Road
Middleton, WI 53562
==========================================================================================================
Dale R. Tetzlaff 102,550
941 Lori Lane
Sun Prairie, WI 53590
==========================================================================================================
Russell E. Lefevre 170,920
5826 Schumann Drive
Madison, WI 53711
43
==========================================================================================================
Raymond L. Balfour 125,000
29 Blue Ridge Court
Madison, WI 53705
==========================================================================================================
Arthur Homa 40,000
18 Madeline Island
Madison, WI 53719
==========================================================================================================
Thomas F. Pyle, Jr. 2,022,785
3500 Corbin Court
Madison, WI 53704
with a copy to:
Benjamin F. Garmer, III
Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
==========================================================================================================
44