SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 24, 1999
Sovereign Specialty Chemicals, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 333-39373 36-4176637
(State of Incorporation) (Commission File No.) (IRS Employer Number)
225 West Washington Street, Suite 2200, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 419-7100
<PAGE>
The undersigned registrant hereby amends its Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 29,
1999 (the "Initial Form 8-K") by deleting the caption "Item 5" and the
three paragraphs appearing under that caption in the Initial Form 8-K and
inserting the text following this paragraph and set forth below. The newly
added text updates the information contained in the Initial Form 8-K. This
amendment to the Initial Form 8-K includes as an exhibit (i) a shareholders
agreement executed and delivered by Sovereign Specialty Chemicals, Inc.
(the "Company") at the closing of the stock purchase by SSCI Investors LLC
and (ii) a press release dated January 10, 2000 regarding the closing of the
stock purchase.
Item 1. CHANGES IN CONTROL OF REGISTRANT
On November 24, 1999, Sovereign Specialty Chemicals, L.P.,
the parent partnership of the Company, entered into an agreement
to sell 75% of its 100% ownership stake in the Company to SSCI
Investors LLC ("SSCI"), an entity owned by an investor group led
by AEA Investors Inc. ("AEA"), with the remaining 25% of the
Company owned by other investors, including the Company's current
management team. On December 30, 1999, the transaction was
consummated for an aggregate purchase price of approximately
$360,000,000 (including the retained equity interest) assuming a
balance sheet free of cash and indebtedness. Funding for the
purchased stock was provided by equity financing from the
investor group owning SSCI. In accordance with the terms of the
indenture dated August 1, 1997 governing the Company's 9-1/2%
Senior Subordinated Notes due 2007, the Company intends to make a
change of control offer to purchase such notes.
In connection with the stock purchase transaction, the
Company, SSCI and certain members of the Company's management
entered into a shareholders agreement pursuant to which SSCI has
agreed that, prior to the consummation of an underwritten public
offering of the Company's common stock, SSCI will vote all shares
of common stock owned or controlled by it, and will take all
necessary or desirable actions within the control of SSCI to (a)
elect Robert B. Covalt a director of the Company and to cause Mr.
Covalt to hold the position of Chairman of the Board of the
Company for so long as the Covalt Family Group (as defined in the
shareholders agreement) owns at least 5% of the outstanding
shares of common stock of the Company and (b) cause at least two
members of the board of directors to be members of the investor
group led by AEA but who are not officers or employees of AEA.
The obligation to elect Mr. Covalt to be a director and Chairman
of the Board as described above in clause (a) will terminate in
certain instances when Mr. Covalt is no longer employed by the
Company. The foregoing summary of the shareholders agreement is
not complete, and is qualified in its entirety by reference to
the full text of the shareholders agreement which has been filed
as an exhibit to this current report.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit 99.1 Shareholders Agreement, dated
as of December 29, 1999, by and
among the Company, SSCI and the
shareholders listed on Schedule I
thereto.
Exhibit 99.2 Press Release of Sovereign Specialty
Chemicals, L.P. dated January 10, 2000,
regarding sale of ownership stake in the
Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SOVEREIGN SPECIALTY CHEMICALS, INC.
(registrant)
By: /s/ John R. Mellett
-------------------------------
John R. Mellett
Vice President and
Chief Financial Officer
Dated: January 13, 2000
EXHIBIT 99.1
===========================================================================
SHAREHOLDERS AGREEMENT
by and among
SOVEREIGN SPECIALTY CHEMICALS, INC.,
SSCI INVESTORS LLC
and
The Shareholders Listed on Schedule I Hereto
Dated as of December 29, 1999
===========================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS....................................................1
Section 1.1. Definitions...........................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES................................9
Section 2.1. Representations and Warranties of the Company.........9
Section 2.2. Representations and Warranties of Investors LLC......10
Section 2.3. Representations and Warranties of Employee Parties...10
ARTICLE III CORPORATE GOVERNANCE; CERTAIN CORPORATE ACTIONS.............11
Section 3.1. Voting of Shares.....................................11
Section 3.2. Composition of the Board of Directors................11
Section 3.3. Certain Transactions.................................12
Section 3.4. Books, Records and Reports...........................13
ARTICLE IV TRANSFER.....................................................13
Section 4.1. Transfer Restrictions................................13
Section 4.2. Take Along Rights....................................16
Section 4.3. Tag Along Rights.....................................17
Section 4.4. Permitted Transfers..................................18
Section 4.5. Certain Consequences of Termination of Employee's
Employment or Competition..........................18
Section 4.6. Put Rights...........................................20
ARTICLE V REGISTRATION RIGHTS...........................................21
Section 5.1. Piggyback Registrations..............................21
Section 5.2. Demand Registration..................................22
Section 5.3. Holdback.............................................24
Section 5.4. Registration Procedures..............................24
Section 5.5. Registration Expenses................................27
Section 5.6. Indemnification......................................27
Section 5.7. Participation in Underwritten Registrations..........30
Section 5.8. Pre-Emptive Rights...................................30
ARTICLE VI GENERAL PROVISIONS...........................................32
Section 6.1. Notices..............................................32
Section 6.2. Assignment; Binding Effect; Benefit; Additional
Signatories..........34
Section 6.3. Entire Agreement.....................................34
Section 6.4. Amendment............................................34
Section 6.5. Governing Law........................................35
Section 6.6. Counterparts.........................................35
Section 6.7. Headings.............................................35
Section 6.8. Interpretation.......................................35
Section 6.9. Incorporation of Exhibits and Schedules..............35
Section 6.10. Third Party Beneficiary..............................35
Section 6.11. Severability.........................................35
Section 6.12. Enforcement of Agreement.............................36
Section 6.13. Termination..........................................36
<PAGE>
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of December 29, 1999 (this
"Agreement"), by and among Sovereign Specialty Chemicals, Inc., a Delaware
corporation (the "Company"), SSCI Investors LLC, a Delaware limited
liability company ("Investors LLC"), and the shareholders listed on
Schedule I hereto (the "Employees"). Capitalized terms used in this
Agreement are set forth in Article I hereof.
A. Whereas Investors LLC is purchasing certain Shares pursuant to
a Stock Purchase Agreement dated as of November 24, 1999, as amended,
between Investors LLC, Sovereign Specialty Chemicals, L.P. (the "Selling
Partnership"), and the other parties thereto (the "Stock Purchase
Agreement").
B. Whereas the Selling Partnership is distributing Shares to the
Employees.
C. Whereas each Employee holds shares of Common Stock prior to
the Closing or will be receiving options to purchase Shares ("Stock
Options") pursuant to an employee stock option plan (the "Stock Option
Plan") and may purchase additional Shares from time to time ("Additional
Shares").
Accordingly, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
"Additional Shares": as defined in the Preamble to this
Agreement.
"AEA": AEA Investors Inc., a Delaware corporation.
"Affiliate": of any Person, means any other Person controlling,
controlled by or under common control with such Person.
"Agreement": as defined in the Preamble to this Agreement.
"Applicable Valuation Date": the date of the Call Notice or Put
Notice.
"Bank Credit Agreement": the Credit Agreement dated of as
December 29, 1999 among Sovereign Specialty Chemicals, Inc. and the banks,
financial institutions and other institutional lenders listed on the
signature pages thereof.
"Board of Directors": the board of directors of the Company or a
duly designated committee thereof.
"Business Day": a day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York are not required to
open.
"Call Option": the rights of the Company set forth under Section
4.5.
"Call Option Notice": as defined in Section 4.5(d).
"Call Option Proceeds": as defined in Section 4.5(d).
"Change of Control": means (i) the approval by members or
shareholders of the liquidation or dissolution of Investors LLC or the
Company, (ii) a sale or other disposition of 51% or more of the outstanding
interests or voting stock, respectively, of Investors LLC or the Company,
(iii) the merger or consolidation of Investors LLC or the Company with or
into any entity, or (iv) a sale or other disposition of substantially all
of the assets of Investors LLC or the Company; provided, however, that the
term "Change of Control" shall exclude each transaction which is a
"Non-Control Transaction." "Non-Control Transaction" means (i) any
transaction following which Investors LLC Parties own, directly or
indirectly, a majority of the outstanding interests or shares of voting
stock of the purchasing or surviving entity, as applicable, (ii) a merger
or consolidation following which those persons who owned directly or
indirectly a majority of the outstanding interests or shares of voting
stock of Investors LLC and/or the Company immediately prior to such merger
or consolidation will own directly or indirectly a majority of the
outstanding interests or shares of voting stock of the surviving
corporation, (iii) a sale or other disposition of interests or capital
stock, respectively, of Investors LLC or the Company following which those
persons who owned directly or indirectly a majority of the outstanding
interests or shares of voting stock immediately prior to such sale will own
directly or indirectly a majority of the outstanding interests or shares of
voting stock of the purchasing entity, (iv) a sale or other disposition of
substantially all of the assets of Investors LLC or the Company to an
Affiliate of Investors LLC or the Company, (v) an IPO of the Company or
(vi) any transaction following which Investors LLC Parties constitute a
majority of the directors on the board of directors of the Company or have
a right to elect a majority of the board of directors.
"Commission": the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock": the common stock of the Company (all classes) now
or hereafter authorized to be issued, whether voting or non-voting.
"Company": as defined in the Preamble to this Agreement.
"Competition": directly or indirectly own any interest in, invest
in, lend to, borrow from, manage, control, participate in, consult with,
render services to, or in any other manner whatsoever engage in, any
business which is competitive with any business actively being engaged in
by the Company, its Subsidiaries and their Affiliates or actively (and
demonstrably) being considered by the Company, its Subsidiaries and their
Affiliates for entry into on the date of the termination of employment,
within any states or geographical regions in which any such business is
being conducted or in which the Company, its Subsidiaries and their
Affiliates is or are actively (and demonstrably) considering engaging in on
the date of the termination of the employment. The preceding to the
contrary notwithstanding shall not include the making of investments in the
publicly traded securities of any corporation, provided further that such
investments do not amount to more than 1% of the outstanding securities of
any class of such corporation, provided that, except as this definition is
used in Sections 3.2 and 3.4, with respect to any Employee who has an
employment agreement with the Company or any Subsidiary which defines a
non-competition period the activities which are prohibited during such
period shall constitute Competition for purposes of such Employee.
"Cost of the Shares": in the case of Roll-Over Shares, an amount
equal to the purchase price paid by the Investors LLC for Shares pursuant
to the Stock Purchase Agreement divided by the number of Shares purchased
by the Investors LLC Parties; in the case of Option Shares, the exercise
price thereof paid by the Employee therefor; and in the case of Additional
Shares, the price paid therefor by the Employee who purchased such
Additional Shares.
"Covalt": Robert Covalt.
"Covalt Family Group": Covalt, Tregooden Partners, L.P., Nautical
Partners, L.P. and Serendipity Partners, L.P. and any transferee of Covalt
or such other existing holders who would be a Permitted Transferee pursuant
to Section 4.1(e)(i) (except that for clause (3) all partners thereof shall
be Covalt and his spouse or lineal ancestor or descendants).
"Demand Registration": as defined in Section 5.2.
"Employee": as defined in the preamble to this Agreement.
"Employee Parties": the original signatories hereto (other than
the Company and Investors LLC), any other employees of the Company or any
Subsidiary that may become a party hereto from time to time and their
Permitted Transferees.
"Equity Value": the estimated realizable sales price of the
Company in its entirety in a sale to an unrelated third party in an arm's
length transaction at the Applicable Valuation Date, as determined by the
Board of Directors in good faith, by employing the same methodologies as
have been employed by AEA in accordance with its customary practices, in
the preparation of its periodic reports to Participants of the probable
disposition value of Investors LLC's investment in the Company. It is
understood that the Board of Directors would review, among other things,
market valuations of comparable companies (provided that the equity value
of publicly traded comparables shall be their market capitalizations
without any adjustments for control premiums), other market data and other
factors and will take into consideration outstanding indebtedness, other
liabilities and potential transaction expenses.
"Exit Sale": as defined in Section 4.2.
"Fair Market Value": (x) the Equity Value of the Company
determined as of Applicable Valuation Date plus the aggregate sum of the
exercise prices of all issued and outstanding Stock Options on the
Applicable Valuation Date divided by (y) the number of Shares of Common
Stock outstanding on a fully diluted basis (assuming full exercise of all
issued and outstanding Stock Options and other convertible securities). If
the Fair Market Value (without giving effect to the exercise of any Stock
Option) is less than the exercise price of such Stock Option then such
Stock Option shall be excluded from the calculation in both clauses (x) and
(y) for purposes of determining Fair Market Value.
"IPO": an initial underwritten public offering of Shares
registered under the Securities Act, whether for the sale of Shares by the
Company or by shareholders.
"Indenture": the Indenture dated as of August 1, 1997 among the
Company, certain subsidiaries of the Company and the Bank of New York as
Trustee, as amended from time to time.
"Investors": AEA SSC Investors Inc.
"Investors LLC": as defined in the preamble to this Agreement.
"Investors LLC Parties": Investors LLC, AEA, any Person
controlling or controlled by AEA or any officers, directors, employees,
participants, shareholders of AEA or members of Investors LLC.
"Non-Transferring Party": as defined in Section 4.3(iv).
"Notified Shareholders": as defined in Section 5.8.
"Option Shares": Shares received upon exercise of Stock Options.
"Participants": any Investors LLC Party or any Person who is the
beneficial owner of any equity interest in any Investors LLC Party.
"Permitted Transferees": any Person to whom Shares are
transferred by an Employee or any previous Permitted Transferees, excluding
any Shares transferred under Article V or pursuant to Sections 4.2 and 4.3
and excluding any Shares sold after the consummation of an IPO pursuant to
Rule 144 under the Securities Act in compliance with Sections 4.1 and 5.3.
"Person": any natural person, corporation, limited liability
company, partnership, firm, association, trust, government, governmental
agency or other entity, whether acting in an individual, fiduciary or other
capacity.
"Piggyback Registration": as defined in Section 5.1(a).
"Pre-emptive Right Notice": as defined in Section 5.8.
"Private Offering": as defined in Section 5.8.
"Put Option": as defined in Section 4.6.
"Put Option Notice": as defined in Section 4.6(b).
"Put Permissibility Notice": as defined in Section 4.6(d).
"Put Price Notice": as defined in Section 4.6 (b).
"Putting Employee": as defined in Section 4.6(a).
"Qualified Request": as defined in Section 5.2(a).
"Registrable Securities": (i) any shares of Common Stock owned by
the Employee Parties or an Investors LLC Party, as the case may be, and
(ii) any securities issued as a dividend on or other distribution with
respect to or in exchange, replacement or in subdivision of, any such
Common Stock. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (i) a registration statement
with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, or (ii) such
securities shall have been sold (other than in a privately negotiated sale)
pursuant to Rule 144 (or any successor provision) under the Securities Act
and in compliance with the requirements of paragraphs (c), (e), (f), (g)
and (k) of Rule 144.
"Related Party": with respect to any Person means, as of the time
of any Transfer, (i) any person or entity that, directly or indirectly,
through one or more intermediaries, has voting control of, or is under
common voting control with, or is controlled by such Person, (ii) with
respect to individuals, such Person's spouse, parents, children, siblings
and/or grandchildren, and (iii) a trust, corporation, partnership or other
entity, whose beneficiaries, shareholders, partners, or owners, or other
persons or entities holding a controlling interest in which, consist solely
of such Person and/or such other persons or entities referred to in the
immediately preceding clauses (i) or (ii).
"Registration Expenses": as defined in Section 5.5(a).
"Resignation": the voluntary termination of employment hereunder
by the Employee which is not a Resignation with Good Grounds (except if
made in contemplation of a Termination by the Company for Cause), provided
that if such action is taken by the Employee without the giving of at least
ninety (90) days prior written notice, such termination of employment shall
not be a "Resignation," but instead shall constitute a Termination by the
Company for Cause; provided, however, that with respect to any Employee who
has an employment agreement with the Company or any Subsidiary this
definition shall be replaced by any corresponding definition in such
employment agreement with respect to such Employee.
"Resignation with Good Grounds": a voluntary termination of the
Employee's employment hereunder on account of, and within 60 days after,
the occurrence of one or more of the following events:
(i) the assignment to the Employee of any duties
inconsistent in any material respect with the Employee's position
(including status, offices and titles), authority, duties or
responsibilities which results in a diminution of the Employee's position,
excluding for this purpose an isolated, insubstantial or inadvertent action
not taken in bad faith and which is remedied by the Company or any
Subsidiary promptly after receipt of written notice thereof given by the
Employee;
(ii) the Employee's annual salary and/or target bonus
opportunity is/are decreased below the amount of his then annual salary
and/or target bonus opportunity (provided that so long as the aggregate sum
of the Employee's annual base compensation and potential annual target
bonus in respect of any calendar year are not decreased, the Company or any
Subsidiary shall be free to decrease the potential annual target bonus for
that year and commensurately increase the annual base compensation for that
year without any affect in the subsequent calendar year annual base
compensation and potential annual target bonus, it being expressly
acknowledged by the Employee that the operating result achievement criteria
for the payment of any of the potential annual target bonus by the Company,
its Subsidiaries and their Affiliates shall be determined by the Company or
any Subsidiary in its absolute discretion) or the Employee's benefits under
any material employee benefit plan, program or arrangement of the Company
or any Subsidiary (other than a change that affects all Employees of the
Company or any Subsidiary) are materially reduced from the level in effect
upon the Employee's commencement of participation therein;
(iii) the Employee is required by the Company or any
Subsidiary to relocate his personal residence outside of a 50 mile radius
of the current principal place of business (other than as agreed to by the
Employee prior to the execution of this Agreement or as provided in another
agreement); or
(iv) the failure of the Company or any Subsidiary to comply
with any of the provisions of this Agreement or any employment agreement,
other than an isolated, insubstantial or inadvertent action not taken in
bad faith and which is remedied by the Company or any Subsidiary promptly
after receipt of written notice thereof given by the Employee;
provided; however that with respect to any Employee who has an
employment agreement with the Company or any Subsidiary this definition
shall be replaced by any corresponding definition in such employment
agreement with respect to such Employee.
"Restricted Certificate": as defined in Section 4.1(b).
"Restricted Period": as defined in Section 4.1.
"Restricted Shares": as defined in Section 4.1.
"Rollover Shares": any Shares owned by Employees on the date of
this Agreement.
"Secondary Offering": any underwritten public offering of Shares
registered under the Securities Act following an IPO in which Shares are
being sold by any shareholder.
"Securities Act": the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, as the same shall be in
effect at the time.
"Selling Partnership": as defined in the Preamble to this
Agreement.
"Shares": shares of Common Stock, provided that in the case of an
Employee Party, Shares shall mean all Rollover Shares, all Additional
Shares, all Option Shares and all Shares such Employee Party is entitled to
purchase pursuant to vested but unexercised Stock Options.
"Stock Options": as defined in the Preamble to this Agreement.
"Stock Option Plan": as defined in the Preamble to this
Agreement.
"Stock Purchase Agreement": as defined in the Preamble to this
Agreement.
"Subsidiary": of any Person shall mean any corporation or other
legal entity of which such Person (either alone or through or together with
any other Subsidiary) owns, directly or indirectly, 50% or more of the
stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
"Tag Along Notice": as defined in Section 4.3.
"Termination by the Company for Cause": means termination by the
Company or any of its Subsidiaries or Affiliates of the Employee's
employment for: (i) misappropriation of any significant monies or
significant assets or properties of the Company or any Subsidiary, (ii)
conviction of a felony or a crime involving moral turpitude, (iii)
substantial and repeated failure to comply with directions of the Chief
Executive Officer of the Company or other superior of the Employee or the
board of directors of the Company or any of its Subsidiaries or Affiliates,
(iv) gross negligence or willful misconduct, (v) chronic alcoholism or drug
addiction together with the Employee's refusal to cooperate with or
participate in counseling and/or treatment of same or (vi) any willful
action or inaction of the Employee which, in the reasonable opinion of the
Board, constitutes dereliction (willful neglect or willful abandonment of
assigned duties), or a material breach of Company or Subsidiary policy or
rules which, if susceptible to cure, is not cured by the Employee within
five (5) days following the Employee's receipt of written notice from the
Company or any Subsidiary advising the Employee with reasonable specificity
as to the action or inaction viewed by the Company or Subsidiary to be
dereliction or a material breach of Company or Subsidiary policy or rules
provided, however, that with respect to any Employee who has an employment
agreement with the Company or any Subsidiary this definition shall be
replaced by any corresponding definition in such employment Agreement with
respect to such Employee.
"Termination by the Company Without Cause": means a termination
of the Employee's employment by the Company or any Subsidiary which is not
a Termination by the Company for Cause, provided, however, that with
respect to any Employee who has an employment agreement with the Company or
any Subsidiary this definition shall be replaced by any corresponding
definition in such employment agreement with respect to such Employee.
"Total Disability": the Employee's inability, because of illness,
injury or other physical or mental incapacity, to perform his duties
hereunder (as determined by the Board of Directors in good faith) for a
continuous period of one hundred eighty (180) consecutive days, or for a
total of ninety (90) days within any three hundred sixty (360) consecutive
day period, in which case such Total Disability shall be deemed to have
occurred on the last day of such one hundred eighty (180) day or three
hundred sixty (360) day period, as applicable provided, however, that with
respect to any Employee who has an employment agreement with the Company or
any Subsidiary this definition shall be replaced by any corresponding
definition in such employment agreement with respect to such Employee.
"Transfer": any sale, transfer, assignment, exchange, grant of a
participation in, gift, hypothecation, encumbrance, pledge or other
disposition by testamentary bequest, inter vivos transfer or otherwise of
any securities or any interests therein, whether direct or indirect.
"Transferring Party": as defined in Section 4.3(iv).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company. The
Company hereby represents and warrants to the other parties hereto as
follows: The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery by the Company of this Agreement, and
the consummation by the Company of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of
the Company. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by, or with
respect to, the Company in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby. The execution and delivery of this
Agreement by the Company and the consummation of the transactions
contemplated hereby by the Company does not conflict with, or result in a
breach of, any law or regulation of any governmental authority applicable
to the Company or any material agreement to which the Company is a party.
Section 2.2. Representations and Warranties of Investors LLC.
Investors LLC hereby represents and warrants to the other parties hereto as
follows:
(a) Authority. Investors LLC has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery by
Investors LLC of this Agreement and the consummation by Investors LLC of
the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Investors LLC. This
Agreement has been duly executed and delivered by Investors LLC and
constitutes a valid and binding obligation of Investors LLC enforceable
against Investors LLC in accordance with its terms. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign, is required by, or with respect
to, Investors LLC in connection with the execution and delivery by
Investors LLC of this Agreement or the consummation by Investors LLC of the
transactions contemplated by this Agreement. The execution and delivery by
Investors LLC of this Agreement and the consummation by Investors LLC of
the transactions contemplated hereby does not conflict with, or result in a
breach of, any law or regulation of any governmental authority applicable
to Investors LLC or any material agreement to which Investors LLC is a
party.
Section 2.3. Representations and Warranties of Employee Parties.
Each Employee Party for itself severally and not jointly hereby represents
and warrants to the other parties as follows:
(a) Authority. Such Employee Party has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
such Employee Party and constitutes a valid and binding obligation of such
Employee Party enforceable against such Employee Party in accordance with
its terms. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency
or commission or other governmental authority or instrumentality, domestic
or foreign, is required by, or with respect to, such Employee Party in
connection with the execution and delivery of this Agreement by such
Employee Party or the consummation by such Employee Party of the
transactions contemplated hereby. The execution and delivery by such
Employee Party of this Agreement and the consummation by such Employee
Party of the transactions contemplated hereby does not conflict with, or
result in a breach of, any law or regularities of any governmental
authority applicable to such Employee Party or any material agreement to
which Employee Party is a party.
(b) Shares. Schedule 2.3 sets forth the ownership of the Shares
held by such Employee Party as of the date hereof and which Schedule also
indicates the Shares acquired by the Employee Party pursuant to the
exercise of options or rights which became exercisable (or, vested by
reason of the elimination of restrictions which were cancelled) by reason
of the execution or consummation of the Stock Purchase Agreement.
ARTICLE III
CORPORATE GOVERNANCE; certain corporate actions
Section 3.1. Voting of Shares. (a) From and after the date
hereof, each Investors LLC Party shall vote all Shares of Common Stock
owned or controlled by it and take all other necessary or desirable actions
within its control (including, without limitation, attendance at meetings
in person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings), to effectuate the provisions of this
Agreement.
(b) From and after the date hereof, each Employee Party shall
vote all of its Shares of Common Stock owned or controlled by it and take
all other necessary or desirable actions within its control (including,
without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), to effectuate the provisions of this Agreement.
(c) From and after the date hereof, the Company and its
Subsidiaries shall take all necessary or desirable actions within its
control (including, without limitation, calling special board and
stockholder meetings) to effectuate the provisions of this Agreement.
Section 3.2. Composition of the Board of Directors. (a) Investors
LLC covenants to the Employee Parties that it shall take whatever actions
are required so that from and after the date hereof and prior to the
consummation of the IPO at least two members of the board of directors of
the Company shall be individuals that are Investors LLC Parties who are not
also officers or employees of AEA.
(b) Investors LLC hereby covenants to Covalt (and not to the
other Employee Parties) that: prior to the consummation of the IPO if and
so long as the Covalt Family Group beneficially owns at least 5% of the
Shares then outstanding on a fully diluted basis (excluding stock options)
then Covalt (personally and with no right of substitution) shall be
designated to serve on the board of directors of the Company and the board
of directors of any Subsidiary of the Company (provided that so long as he
is employed by the Company he shall be Chairman of the Board and Chief
Executive Officer of the Company and Chairman of the Board of each domestic
Subsidiary of the Company) and at each meeting of shareholders at which the
election of directors is on the agenda, the Company shall recommend to the
shareholders of the Company Covalt's election as director and the Investors
LLC Parties shall vote their Shares in favor of such election.
Notwithstanding the foregoing, at such time as Covalt shall no longer be
employed by the Company, Covalt will be removed from the Board of Directors
and all boards of any Subsidiary of the Company and shall no longer have
any rights pursuant to this Section 3.2 if either (X) Covalt is Terminated
by the Company for Cause, (Y) Covalt is in Competition or (Z) all of the
directors of the Board of Directors who are Investors LLC Parties shall
unanimously vote for the removal of his right to be a director.
Section 3.3. Certain Transactions. Investors LLC agrees with
Covalt that so long as the Covalt Family Group owns at least 5% of the
Shares then outstanding on a fully diluted basis (excluding Stock Options)
from time to time and Covalt agrees with Investors LLC that:
(a) Transactions (i) except with the written consent of Covalt,
between the Company and the Investors LLC Parties and their Affiliates and
(ii) except with the written consent of Investors, between the Company and
Covalt and his Affiliates, shall, in each case, not be on terms more
favorable to such party (other than the Company) than would be obtained by
an unaffiliated third party. This provision shall only be enforceable by or
give any rights to Covalt or Investors LLC Parties.
(b) Notwithstanding the foregoing, Section 3.3(a) shall not
restrict (i) the payment of (x) any management fees payable to Investor LLC
Parties or their Affiliates in an annual amount of up to $1.6 million which
cap may be increased from time to time by the Company's Board of Directors
to proportionately reflect the expansion of the Company including the
expansion of the equity capitalization of the Company or (y) any
transaction or financing fees to Investors or its Affiliates, which fees
shall be customary, taking into account any fees paid to third party
service providers in any such transaction, as well as, in the case of
clauses (x) and (y) any related out of pocket expenses, (ii) compensation
arrangements with officers, directors and employees of the Company and its
Subsidiaries, (iii) the granting or exercise of stock options to directors,
employees or consultants of the Company and its Subsidiaries in an
aggregate amount not to exceed 15% of the Shares outstanding on a fully
diluted basis (giving effect to stock options) from time to time, (iv)
purchase of Shares by employees under employee stock purchase plans or
otherwise, (v) registration rights granted by the Company to shareholders
or Affiliates of shareholders, (vi) customary director and officer
indemnification or matters relating thereto, and (vii) the redemption or
purchase of Shares by the Company from the Investors LLC Parties and their
Affiliates in connection with employee stock purchases.
(c) The parties hereto acknowledge that the Company may from time
to time grant registration rights and other shareholder rights to Persons
that are or become shareholders of the Company, including the payment of
expenses of such shareholders. The parties hereto consent to the payment of
expenses by the Company in connection therewith and the payment of the fees
and expenses set forth under Section 3.3(b) above.
Section 3.4. Books, Records and Reports. (a) The Company shall
cause to be kept on an appropriate basis, and each shareholder of the
Company shall have access to, appropriate books, records and accounts. The
books and records of the Company shall each be audited as of the end of
each calendar year by a firm of independent public accountants of national
standing selected by the Company.
(b) Within 90 days of the end of each fiscal year, the Company
shall mail to each of its shareholders a report setting forth an audited
balance sheet as at the end of such fiscal year and audited statements of
income and source and use of funds for such fiscal year of the Company, and
any other information the Company deems necessary or desirable;
(c) Notwithstanding the foregoing, the Company shall not be
required to provide any information to any Person who is in Competition.
ARTICLE IV
TRANSFER
Section 4.1. Transfer Restrictions. (a) The Investors LLC Parties
and the Employee Parties shall not Transfer all or part of any Shares owned
of record by them in violation of the provisions of this Article IV. Any
Transfer in violation of the provisions of this Article IV shall have no
effect and be null and void. No direct or indirect transaction whose
primary purpose is to subvert the provisions of this Section 4.1 shall be
permitted.
(b) The parties hereby acknowledge and agree that, so long as
such restriction is applicable hereunder or by law, each of the
certificates representing the Shares held by the parties hereto shall be
subject to stop transfer instructions and shall include the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY BE OFFERED OR SOLD OR OTHERWISE DISPOSED OF ONLY IF
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR IF AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. THESE SHARES
ARE SUBJECT TO CERTAIN LIMITATIONS ON TRANSFER AND TO
CERTAIN VOTING AGREEMENTS AND OBLIGATIONS AS ARE SET
FORTH IN A SHAREHOLDERS AGREEMENT, DATED AS OF DECEMBER
29, 1999, BY AND AMONG SOVEREIGN SPECIALTY CHEMICALS,
INC., SSCI INVESTORS LLC AND THE OTHER PARTIES THERETO,
INCLUDING, BUT NOT LIMITED TO, RESTRICTIONS ON THEIR
SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION AND VOTING
OBLIGATIONS TO EFFECT CERTAIN TRANSACTIONS. A COPY OF
SUCH AGREEMENT IS ON FILE WITH THE SECRETARY OF
SOVEREIGN SPECIALTY CHEMICALS, INC. SUCH TRANSFER
RESTRICTIONS AND VOTING OBLIGATIONS SHALL BE BINDING ON
FUTURE TRANSFEREES AND HOLDERS.
Each stock certificate evidencing any of the Shares described above in this
Section 4.1(b) which bears the legend set forth above is hereinafter
referred to as a "Restricted Certificate."
(c) Each holder of a Restricted Certificate, by acceptance
thereof, agrees, prior to any offer to sell, sale or other disposition or
Transfer of part or all of the securities evidenced by such Restricted
Certificate, to give written notice to the Company of such holder's
intention to effect such sale or other disposition or Transfer. Each such
notice shall describe the manner and circumstances of the proposed sale or
other disposition or Transfer in sufficient detail and may be accompanied
by an opinion of counsel to such holder. Promptly upon receipt of such
notice, the Company shall present a copy thereof (together with any
accompanying opinion of counsel to such holder) to its counsel, and the
following provisions shall apply:
(i) If, in the opinion of counsel to such holder,
satisfactory in form and substance to the Company and its counsel, or if
such notice was not accompanied by an opinion of counsel to such holder,
then, if, in the opinion of counsel to the Company, the proposed sale or
other disposition or Transfer may be effected without registering the
securities involved under the Securities Act, such holder shall, subject to
Section 4.1(d) and Section 5.3, be entitled to Transfer such securities in
accordance with the terms of the notice delivered to the Company. The
Company will advise such holder, within 10 Business Days after submission
of such notice, whether such holder is entitled to so Transfer the
securities. If such holder is entitled to so Transfer, he shall submit the
Restricted Certificate to the Company in proper form for Transfer and
accompanied by appropriate instruments of Transfer. Such Restricted
Certificate shall also be accompanied by an undertaking in writing by the
transferee to be bound by all the terms of this Agreement. Each Restricted
Certificate thus transferred (and each of the stock certificates evidencing
any untransferred balance of the securities evidenced by such Restricted
Certificate) shall bear the restrictive legend set forth in Section 4.1(b),
unless, in the opinion of both such counsel (or counsel to the Company if
such holder did not present an opinion of his counsel), such legend is not
required by the applicable provisions of the Securities Act.
(ii) If in the opinion of either of such counsel (or counsel
to the Company if such holder did not present an opinion of his counsel),
the proposed sale or other disposition or Transfer cannot be effected
without registering the securities involved under the Securities Act, such
holder shall not offer to sell, sell or otherwise dispose of or Transfer
such securities unless and until such securities have been registered under
the Securities Act for such purpose or an exemption becomes available.
(d) Except as permitted by Sections 4.2 through 4.6 or Article V
of this Agreement, each Employee Party shall not, at any time from the date
hereof until the earlier of (x) the IPO and (y) the fifth anniversary of,
in the case of Employees that executed this Agreement on the date hereof,
that date, and in the case of Employees that executed this Agreement
subsequent to the date hereof, the date the Employee executes this
Agreement (the "Restricted Period"), without the consent of the Company and
Investors Transfer any Shares owned by him ("Restricted Shares"), provided
that in no event shall any Employee Party transfer any Shares to J.
P.Morgan or its assignees or affiliates without the prior consent of
Investors.
(e) Notwithstanding any provision to the contrary contained in
this Agreement and upon compliance with Section 4.1(c):
(i) An Employee Party may Transfer Restricted Shares to: (1)
a spouse or any lineal ancestor or descendant; (2) the trustee or trustees
of a trust or trusts at any time established for the primary benefit of the
Employee or the spouse or any lineal ancestor or descendant of the
Employee, provided that each and every trustee who may vote any Restricted
Shares shall be the Employee or a person referred to in this Section
4.1(e)(i) or a bank or trust company; and (3) a partnership or
partnerships, all of the general and limited partners of which are the
Employee and/or one or more of the persons referred to with respect to such
Employee in this Section 4.1(e) (other than a bank or trust company);
provided that (x) any such trust or partnership shall have no terms
inconsistent with the obligations of an Employee under this Agreement, and
(y) as a condition of Transfer, any Permissible Transferee shall execute
and deliver to the Company an agreement in form and substance reasonably
satisfactory to the Company pursuant to which the Permissible Transferee
agrees to be bound by all of the provisions of this Agreement. If any
Restricted Shares are transferred to a Permissible Transferee, such
Permissible Transferee shall take and hold such Restricted Shares, and such
Restricted Shares shall be, subject to this Agreement and to the rights,
obligations and restrictions provided herein with respect to the original
Employee of such Restricted Shares as of the date of this Agreement (or, in
the case of Employees that executed this Agreement subsequent to the date
hereof, the date such Employee executes this Agreement), as if such
Permissible Transferee were such original Employee.
(ii) Any Transfer of Restricted Shares otherwise permitted
by this Section 4.1(e) shall not be made unless in compliance with all
applicable laws, including, without limitation, the securities laws of the
United States and the states thereof.
(f) No purported Transfer of any Restricted Shares or the shares
represented by Restricted Certificates in violation of this Agreement shall
be of any force or effect, and no such Transfer shall be made or recorded
on the books of the Company.
Section 4.2. Take Along Rights. If, prior to an IPO, the
Investors LLC Parties desire to Transfer or exchange directly or indirectly
(by merger or otherwise), at least 50% of the Shares beneficially owned by
the Investors LLC Parties (any such transaction being referred to herein as
an "Exit Sale") to any Person who is not an Affiliate of the transferring
Investors LLC Party or an Affiliate of Investors, Investors may require,
pursuant to a written notice delivered to the Employee Parties at least 20
days prior to the closing of the proposed Exit Sale, that each Employee
Party sell to the prospective purchaser, concurrently with and on the terms
(including price) and subject to the conditions of the Exit Sale, up to
that number of Shares owned by each Employee Party as shall equal the
product of (x) a fraction, the numerator of which is the number of Shares
held by the Investors LLC Parties proposed to be transferred in the Exit
Sale and the denominator of which is the number of Shares owned by the
Investors LLC Parties, and (y) the number of Shares owned by such Employee
Party. If the Investors LLC Parties propose the Transfer of all or
substantially all of the assets or business, (whether by merger, sale or
otherwise) of the Company, then Investors and the Company shall have the
right to require the Employee Parties to take promptly all action necessary
or appropriate (including voting their Shares in favor of such transaction)
in order to effect such transaction. Each of the Employee Parties covenants
and agrees that it shall take such actions as are necessary to consummate
the transactions contemplated by this Section 4.2. Any indemnification
provided in connection with any Transfer made pursuant to this Section 4.2
shall be on a several and not joint basis and any such indemnification
shall be pro-rata in accordance with the number of Shares Transferred or
proceeds received and any such indemnification shall be limited to the
proceeds received by such Employee Party in connection with the
transaction.
Section 4.3. Tag Along Rights. If, prior to an IPO, the Investors
LLC Parties desire to Transfer (other than Transfer to any other Investors
LLC Party or Related Party) directly or indirectly Shares, the Investors
LLC Parties shall provide the Employee Parties with written notice (the
"Tag Along Notice") (which may, but need not be, incorporated into the
notice required pursuant to Section 4.2) setting forth:
(i) the number and class of Shares proposed to be
Transferred;
(ii) the identity of the prospective purchaser;
(iii) all material terms and conditions of such proposed
transaction; and
(iv) that the party transferring Shares requiring a
tag-along notice (the "Transferring Party") is offering the Employee
Parties (the "Non-Transferring Party") the right to participate in such
Transfer on a pro rata basis on the same terms and conditions as are
applicable to the Transferring Party, provided that the Investors LLC
Parties may Transfer (x) up to 15% of the Shares beneficially owned by them
in the aggregate as of the Closing without complying with this Section 4.3
and (y) to other Investors LLC Parties or the Related Parties. This Section
shall not apply to any redemption or Transfer of Shares made in connection
with any employee stock purchase plans. Tag-Along rights shall not apply,
and the 15% computation referred to in the preceding clause (x) shall
exclude, Shares sold to Employees of the Company by any Investors LLC Party
or its Affiliates within 365 days after the date hereof.
Within 10 Business Days following the delivery of the Tag
Along Notice, the Non-Transferring Party shall, by notice in writing to the
Transferring Party, have the opportunity to sell to the prospective
purchaser (upon the same terms and conditions as the Transferring Party) up
to that number of Shares of the class or classes specified in the Tag Along
Notice owned by such Non-Transferring Party as shall equal the product of
(x) a fraction, the numerator of which is the number of Shares of the class
or classes specified in the Tag Along Notice owned by the Non-Transferring
Party as of the date of such proposed sale and the denominator of which is
the aggregate number of Shares of the class or classes specified in the Tag
Along Notice owned as of the date of such Tag Along Notice by Investors LLC
Parties and the Non-Transferring Party and any other participating Person,
and (y) the number of Shares proposed to be sold. The amount of Shares to
be sold by the Transferring Party shall be reduced if and to the extent
necessary to provide for such sale of Shares by the Non-Transferring Party.
If the Non-Transferring Party does not elect to participate in such sale
within the 10 Business Day period referred to above, the Transferring Party
shall be entitled to consummate such sale without the participation of the
Non-Transferring Party.
Section 4.4. Permitted Transfers. The provisions of Sections 4.1,
4.2 and 4.3 shall not apply to any Transfer of Shares made pursuant to
Article V.
Section 4.5. Certain Consequences of Termination of Employee's
Employment or Competition. (a) If at any time an Employee shall cease to be
employed by the Company or any Subsidiary as a result of a Termination by
the Company or any Subsidiary for Cause, or the Employee violates any
non-compete covenant with the Company or any Subsidiary, subject to the
provisions of paragraph (e), the Company shall have the right (a "Call
Option") to purchase all but not less than all of the Shares owned by such
Employee and such Employee's Permitted Transferees at a price per share
equal to the lesser of (x) the Cost of the Shares or (y) 80% of the Fair
Market Value on the Applicable Valuation Date. In addition, any unexercised
Stock Options will be cancelled.
(b) If at any time an Employee shall cease to be employed by the
Company or any Subsidiary other than as a result of a Termination by the
Company for Cause and other than when the Employee violates any non-compete
covenant with the Company or any Subsidiary, subject to the provisions of
paragraph (e), the Company shall have the right, to purchase all but not
less than all the Shares owned by such Employee or such Employee's
Permitted Transferees at a price per Share equal to the Fair Market Value
on the Applicable Valuation Date minus, if applicable, the option exercise
price.
(c) If, prior to the IPO, but before the later of (x) the fifth
anniversary of the date of this Agreement in the case of Employees that
executed this Agreement on the date hereof that date, and, in the case of
Employees that executed this Agreement subsequent to the date hereof, the
date the Employee executes this Agreement or (y) the third anniversary of
the Employee's termination of his employment by the Company, the Employee
is in Competition (other than as provided in paragraph (a) above) subject
to the provisions of paragraph (e), the Company shall have the right to
purchase all but not less than all of the Shares held by such Employee and
such Employee's Permitted Transferees at a price per Share equal to the
Fair Market Value at the Applicable Valuation Date, minus, if applicable,
the exercise price of the Stock Options, provided further that if the
Company is unable to exercise the Call Option provided by this Section
4.5(c) due to restrictions contained in debt or other agreements or due to
limitations of local law then the Company shall provide such Employee
written notice of such limitation and the time period provided in the first
sentence of this Section 4.5(c) shall be extended until 30 days beyond the
expiration of the relevant provision in the debt or other agreement or
required by local law.
(d) If the Company desires to exercise a Call Option, it shall
give written notice thereof (which shall disclose the Equity Value of the
Company, the aggregate sum of the exercise prices of all issued and
outstanding Stock Options and the number of Shares of Common Stock
outstanding on a fully-diluted basis, all as of the Applicable Valuation
Date, without giving effect to "out-of-the money" Stock Options, all as
used to determine Fair Market Value) (a "Call Option Notice") to the
Employee and the Permitted Transferees of such Employee within 60 days of
the occurrence of the event giving rise to such Call Option unless the Call
Option occurs because the Employee is in Competition in which case the
Company may give written notice thereof to the Employee and the Permitted
Transferee within six months of the Company having actual knowledge that
such Employee was in Competition or the written notification of the Company
by the Employee of such Competition; such Call Option shall expire if such
notice is not given within such period. The Employee and the Permissible
Transferees of such Employee shall deliver to the Company certificates
representing the Shares, free and clear of all claims, liens, or
encumbrances, together with blank stock powers, duly executed with all
signature guarantees at a closing at the principal office of the Company on
the seventh day after the Call Option Notice has been given to the
Employee, or at such other place and time and in such manner as may be
mutually agreed to by the Employee and the Company. The proceeds from the
purchase of the Shares pursuant to the Call Option (the "Call Option
Proceeds") shall be paid by a check, which shall be delivered to the
Employee Party at the closing of such purchase.
(e) Notwithstanding the foregoing, the number of the Shares owned
by any Employee and such Employee's Permitted Transferees which are subject
to the Call Option shall be reduced on each anniversary of this Agreement
in the case of Employees that executed this Agreement on the date hereof
and, in the case of Employees that executed this Agreement subsequent to
the date hereof, the anniversary of the date such Employee executed this
Agreement, by 20% of the total number of Shares held by such Employee and
such Employee's Permitted Transferees on the date such Shares first became
subject to the terms of this Agreement, provided that no reductions shall
be applicable with respect to any Shares if such Employee was no longer an
Employee as a result of a Termination by the Company for Cause or a
Resignation (except a Resignation made within 60 days following a Change of
Control) or if the Employee is in violation of any non-compete covenant
with the Company or any Subsidiary.
Section 4.6. Put Rights. (a) Prior to an IPO, if an Employee's
employment is terminated on account of his death, Total Disability,
Termination by the Company Without Cause or Resignation with Good Grounds,
then the Employee (or his or her personal representative as the case may
be) shall have the right to require the Company to purchase up to
two-thirds of the Rollover Shares of such Employee and his Permitted
Transferees (the "Put Option"). The price which the Company shall pay the
Employee (or his or her personal representative, as the case may be) and
such Employee's Permitted Transferees (collectively, the "Putting
Employee") for the Shares in respect of which the Put Option is exercised
shall be a price per Share equal to the lesser of (x) the Cost of the
Shares or (y) 80% of the Fair Market Value at the Applicable Valuation
Date.
(b) If an Employee Party (or his or her personal representative
as the case may be) desires to exercise the Put Option, such Putting
Employee shall give written notice thereof (a "Put Option Notice") to the
Company within 60 days of the occurrence of the event giving rise to such
Put Option; such Put Option shall expire if such notice is not given within
such 60-day period. The Company will provide to the Putting Employee within
fifteen (15) days of receipt of such Put Option Notice the price of which
the Company would be required to purchase the Shares pursuant to the Put
Option (the "Put Price Notice"). The Put Price Notice shall disclose the
Equity Value of the Company, the aggregate sum of the exercise prices of
all issued and outstanding Stock Options and the number of Shares of Common
Stock outstanding on a fully-diluted basis, all as of the Applicable
Valuation Date, without giving effect to "out-of-the money" Stock Options,
all as used to determine Fair Market Value. The Putting Employee may within
seven (7) days following the receipt of a Put Price Notice elect to
exercise the Put Option by sending written notice to the Company. If the
Putting Employee does not exercise the Put Option the Put Option will
expire.
(c) The Company shall be required to pay the Put Option price in
five equal installments. The first installment shall be made 60 days after
the Put Price Notice and shall be paid by check delivered to the Employee.
The other installments shall be paid pursuant to an installment promissory
note containing customary terms, and which shall be prepayable at par,
providing for the payment of the Put Option price in four annual
installments with one installment to be made on each of the four subsequent
anniversaries of the first installment date. All installments other than
the first installment shall bear interest on the principal balance from
time to time outstanding calculated at the prime rate of J. P. Morgan and
its Affiliates compounded annually (which interest rate shall be fixed each
year with respect to the rate to be paid for the following year, on the
date of the payment of each annual installment).
(d) Notwithstanding the foregoing, the Company shall not be
required to fulfill any Put Option to the extent the payment of the full
Put Option price or any installment thereof would not be permissible under
(i) Section 4.06(ii) of the Indenture (ii) Section 5.02(g) of the Bank
Credit Agreement, (iii) any loan or debt agreement the Company and its
Subsidiaries may enter into from time to time or (iv) provisions of any
applicable law. If the Put Option is not permissible at the time of the Put
Option Notice, the exercise of such Put Option shall be void, provided that
the Company shall promptly provide such Putting Employee who had previously
provided a Put Option Notice which was not fully satisfied due to the
restrictions described in this Section 4.6(d), written notice if the
exercise of the Put Option becomes permissible (the "Put Permissibility
Notice") whereupon the Employee Party shall, for a period of 60 days
following the receipt of the Put Permissibility Notice, have the right to
re-exercise the Put Option and if such Put Option is not re-exercised it
will terminate. If 80% of the Fair Market Value of the Shares pursuant to
the provisions of Section 4.6(a) was less than the Cost of the Shares which
were to have been the subject of the Put Option, then the Fair Market Value
of the Shares shall be re-determined on the basis of an Applicable
Valuation Date which shall be the last day of the month preceding the date
of the Put Permissibility Notice, and such Put Permissibility Notice shall
indicate the price which the Company would be required to purchase the
Shares pursuant to the Put Option. If any installment is deferred as set
forth above, such installment will be paid (together with accrued interest)
at the earliest time such payment is permitted.
ARTICLE V
REGISTRATION RIGHTS
Section 5.1. Piggyback Registrations.
(a) Right to Piggyback. If (x) in connection with the IPO, Shares
are proposed to be sold by shareholders of the Company other than Employee
Parties or (y) after the completion of the IPO, whenever the Company
proposes to register any of its equity securities under the Securities Act
(other than a registration on Form S-4 or Form S-8 or any successor or
similar forms) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"),
whether or not for sale for its own account, the Company will give prompt
written notice to Employee Parties and the Investors LLC Parties of its
intention to effect such a registration and will include in such
registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 15 days after
the receipt of the Company's notice. Any Piggyback Registration may be
abandoned at any time without prejudice to the Company or any shareholder
of the Company. The Company may elect to terminate any Piggyback
Registration rights of the Employee Parties in connection with the IPO or
any Piggyback Registration as determined by the Board of Directors in good
faith (it being understood that the Board of Directors can exercise such
termination right when the sale by Employee Parties could adversely affect
an offering of Shares), provided, however, that, except as provided in
Section 5.1(b) or 5.1(c) so long as the Covalt Family Group owns 5% of the
Shares then outstanding on a fully diluted basis (excluding Stock Options)
from time to time the Company may not terminate (i) any Piggyback
Registration rights of a member of the Covalt Family Group at a time that
Covalt is not an employee, officer or director of the Company and (ii) any
Piggyback Registration rights of the Covalt Family Group (other than
Covalt) to extent that Covalt was not required to be disclosed as the
beneficial owner of such Shares in the registration statement for the
Piggyback Registration.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration under the Securities
Act on behalf of the Company, and the managing underwriters or the Company
determines that the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering within a
price range reasonably acceptable to the Company, the Company will include
in such registration (i) first, the securities the Company proposes to sell
and (ii) second, all other securities (including the Registrable Securities
and securities held by holders other than the shareholders a party hereto)
requested to be included in such registration, pro rata among the
respective holders thereof on the basis of the number of securities owned
by each such holder subject to registration rights with the Company.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration under the Securities
Act on behalf of holders of the Company's securities, and the managing
underwriters or the Company determines that the number of securities
requested to be included in such registration exceeds the number which can
be sold in such offering within a price range reasonably acceptable to such
holders or Investors, the Company will include in such registration the
securities (including the Registrable Securities and securities held by
holders other than the shareholders a party hereto) requested to be
included in such registration, pro rata among the respective holders
thereof on the basis of the number of securities owned by each such holder
subject to registration rights with the Company.
(d) Subject to the last sentence of paragraph (a), each Employee
Party shall only be able to include Registrable Securities in any Piggyback
Registration to the extent that such Employee Party requires registration
under the Securities Act to sell its Registrable Securities.
Section 5.2. Demand Registration. As soon as practicable after
receipt by the Company of each Qualified Request (as defined in
subparagraph (i) below) from one or more holders of Registrable Securities
to register under the Securities Act part or all of the Restricted
Securities held by such holder or holders, the Company will cause a
Registration Statement on Form S-1 (or on Form S-2 or Form S-3 if either
such form can be used) under the Securities Act, or any comparable form
then in force, to be filed and shall use its best efforts to cause the
registration statement to become effective, subject to the following:
(i) Prior to an IPO, a Qualified Request shall be a written
request or requests to the Company from Investors LLC or one or more
persons that are Investors LLC Parties and members of the Covalt Family
Group (subject to clause (iii) below) who hold Registrable Securities
evidencing securities which aggregate at least 51% of the sum of all
outstanding shares of the Common Stock which are then Registrable
Securities held by Investors LLC Parties and the Covalt Family Group
(subject to clause (iii) below). After the IPO, a Qualified Request shall
be a written request or requests to the Company from Investors LLC or one
or more persons that are Investors LLC Parties and members of Covalt Family
Group (subject to clause (iii) below) who hold Registrable Securities
evidencing securities which aggregate at least 25% of the sum of all
outstanding shares of the Common Stock which are then Registrable
Securities held by Investors LLC Parties and members of Covalt Family Group
(subject to clause (iii) below) and which have an estimated value of no
less than $5,000,000. The Company agrees to promptly furnish to Covalt
written notice of any Qualified Request delivered pursuant to this Section
5.2(i) and the Covalt Family Group shall have 10 days to notify the Company
that it is joining in such request; and
(ii) The Company shall not be required to file any such
registration statement within six months after the effective date of any
earlier registration statement pursuant to this Section 5.2 or any
Piggyback Registration, nor shall it be required to file a total of more
than three registration statements pursuant to this Section 5.2.
(iii) The provisions of Section 5.2 (i) and (ii) above shall
apply to members of the Covalt Family Group so long as the Covalt Family
Group owns 5% of the Shares then outstanding on a fully diluted basis
(excluding Stock Options) from time to time and then only, (x) with respect
to Registrable Securities owned by Covalt, at such time as Covalt is not an
employee, officer or director of the Company, and (y) with respect to the
Registrable Securities owned by Covalt's Permitted Transferees, to the
extent that Covalt was not required to be disclosed as the beneficial owner
of such Permitted Transferee's Registrable Securities in the registration
statement for the Demand Registration, of the Registerable Securities owned
by Covalt and/or such Permitted Transferee, as the case may be, provided
further that no member of the Covalt Family Group shall solicit requests or
otherwise seek approval of other members of the Investors LLC Parties.
Section 5.3. Holdback. Each shareholder party hereto agrees that,
if requested by the Company or the managing underwriters, if any, in
writing, it will not directly or indirectly (x) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale
of or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of
Common Stock or (y) enter into any swap or other agreement that transfers,
in whole or in part, the economic consequence of ownership of the shares
whether any such swap or transaction is to be settled by delivery of shares
of Common Stock or other securities, in cash or otherwise (other than
securities, if any, of such party included in such Secondary Offering),
during the time period requested in such written request, not to exceed a
period beginning 7 days before and ending two years after the date the
registration statement for any offering of Common Stock is declared
effective. Requests under this section need not be uniformly applied to all
shareholders.
Section 5.4. Registration Procedures. Whenever the parties hereto
have requested that any Registrable Securities be registered in a Piggyback
Registration pursuant to Section 5.1 or a Demand Registration has been
requested pursuant to Section 5.2, the Company will use its reasonable
efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof,
and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and thereafter use its
reasonable efforts to cause such registration statement to become effective
(provided that, before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered
by such registration statement copies of all such documents proposed to be
filed, which documents will be subject to review of such counsel);
(b) prepare and file with the Commission such 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 a period of either (i) not less than six months
(subject to extension pursuant to Section 5.7(b)) or, if such registration
statement relates to an underwritten offering, such longer period as in the
opinion of counsel for the underwriters a prospectus is required by law to
be delivered in connection with sales of Registrable Securities by an
underwriter or dealer or (ii) such shorter period as will terminate when
all of the securities covered by such registration statement have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement (but in
any event not before the expiration of any longer period required under the
Securities Act), and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the discovery of the
happening of any event as a result of which, the prospectus included in
such registration statement contains an untrue statement of a material fact
or omits any fact 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, the Company will prepare and furnish to such
seller a reasonable number of copies of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading in the light of the circumstances
under which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months beginning with the
first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any securities included in such registration statement for
sale in any jurisdiction, the Company will use its reasonable efforts
promptly to obtain the withdrawal of such order;
(l) obtain a cold comfort letter, dated the effective date of
such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the Company's independent public
accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of
the Registrable Securities being sold reasonably request (provided that
such Registrable Securities constitute at least 10% of the securities
covered by such registration statement); and
(m) provide a legal opinion of the Company's outside counsel,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the date of
the closing under the underwriting agreement), with respect to the
registration statement, each amendment and supplement thereto, the
prospectus included herein (including the preliminary prospectus) and such
other documents relating thereto in customary form and covering such
matters of the type customarily covered by legal opinions of such nature.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing.
Section 5.5. Registration Expenses. (a) The Company shall pay all
Registration Expenses relating to any registration of Registrable
Securities hereunder. "Registration Expenses" shall mean any and all fees
and expenses incident to the Company's performance of or compliance with
this Article V, including, without limitation: (i) Commission, stock
exchange or National Association of Securities Dealers, Inc. registration
and filing fees and all listing fees and fees with respect to the inclusion
of securities on the Nasdaq National Market, (ii) fees and expenses of
compliance with state securities or "blue sky" laws and in connection with
the preparation of a "blue sky" survey, including, without limitation,
reasonable fees and expenses of blue sky counsel, (iii) printing expenses,
(iv) messenger and delivery expenses, (v) fees and disbursements of counsel
for the Company, (vi) with respect to each registration, reasonable fees
and disbursements of one counsel for the selling holders of Shares
(selected by the holders of a majority of the Shares included in such
registration), (vii) fees and disbursements of all independent public
accountants (including the expenses of any audit and/or "cold comfort"
letter) and fees and expenses of other persons, including special experts,
retained by the Company, and (viii) any other fees and disbursements of
underwriters, if any, customarily paid by issuers or sellers of securities.
(b) Notwithstanding the foregoing, (i) the provisions of this
Section 5.5 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which
the offering is made and (ii) in connection with any registration
hereunder, each holder of Registrable Securities being registered shall pay
all underwriting discounts and commissions and transfer taxes, if any,
attributable to the Registrable Securities included in the offering by such
holder.
Section 5.6. Indemnification. (a) The Company agrees to indemnify
and hold harmless, to the extent permitted by law, each holder of
Registrable Securities, its officers, directors, members, general or
limited partners and each Person who controls such holder (within the
meaning of the Securities Act) against any losses, claims, damages,
liabilities, joint or several, to which such holder or any such director,
officer, member, general or limited partners or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
(i) any untrue or alleged untrue statement of a material fact contained (A)
in any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or (B) in any application or other
document or communication (in this Section 5.6 collectively called an
"application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify any securities covered by such
registration statement under the "blue sky" or securities laws thereof, or
(ii) any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and the Company will reimburse such holder and each such director, officer,
member, general or limited partner and controlling person for any legal or
any other expenses incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission, made in such
registration statement, any such prospectus or preliminary prospectus or
any amendment or supplement thereto, or in any application, in reliance
upon and in conformity with written information prepared and furnished to
the Company by such holder expressly for use therein or by such holder's
failure to deliver a copy of the registration statement or prospectus or
any amendments or supplements thereto after the Company has furnished such
holder with a sufficient number of copies of the same. In connection with
an underwritten offering, the Company will indemnify such underwriters,
their officers and directors and each Person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided
above with respect to the indemnification of the holders of Registrable
Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing such information and documents regarding
such holder and such holder's intended method of distribution or otherwise
required by the Securities Act as the Company reasonably requests for use
in connection with any such registration statement or prospectus and, to
the extent permitted by law, will indemnify and hold harmless the Company,
its directors and officers and each other Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims,
damages, liabilities, joint or several, to which the Company or any such
director or officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue or alleged
untrue statement of a material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or in any application or (ii) any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the extent that
such untrue statement or omission is made in such registration statement,
any such prospectus or preliminary prospectus or any amendment or
supplement thereto, or in any application, in reliance upon and in
conformity with written information prepared and furnished to the Company
by such holder expressly for use therein, and such holder will reimburse
the Company and each such director, officer and controlling person for any
legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the obligation to indemnify will be individual to
each holder and will be limited to the net amount of proceeds received by
such holder from the sale of Registrable Securities pursuant to such
registration statement. In connection with an underwritten offering, the
holders of Registrable Securities will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided
above with respect to the indemnification of the Company.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense
is assumed, the indemnifying party will not be subject to any liability for
any settlement made by the indemnified party without its consent. An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, member, director or
controlling Person of such indemnified party and will survive the transfer
of securities by any holder thereof. The Company also agrees to make such
provisions, as are reasonably requested by any indemnified party, for
contribution to such party in the event the Company's indemnification is
unavailable for any reason.
Section 5.7. Participation in Underwritten Registrations. (a) In
the case of a registration pursuant to Section 5.1 or 5.2 hereof, if the
Company shall have determined to enter into any underwriting agreements in
connection therewith, all of the holders' Registrable Securities to be
included in such registration shall be subject to such underwriting
agreement. Such underwriting agreement shall also contain such
representations, warranties, indemnities and contributions by the
participating holders as are customary in agreements of that type.
(b) Each Person that is participating in any registration
hereunder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5.4(e) above, such
Person will forthwith discontinue the disposition of its Registrable
Securities pursuant to the registration statement until such Person's
receipt of the copies of a supplemented or amended prospectus as
contemplated by such Section 5.4(e). In the event the Company shall give
any such notice, the applicable time period mentioned in Section 5.4(b)
during which a registration statement is to remain effective shall be
extended by the number of days during the period from and including the
date of the giving of such notice pursuant to this paragraph to and
including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 5.4 (e).
Section 5.8. Pre-Emptive Rights. Prior to the occurrence of an
IPO in the event that the Company desires to issue any Shares or any
securities convertible into or exchangeable or exercisable for Shares in an
offering or placement that is not required to be registered under the
Securities Act (a "Private Offering"), the Company must first offer to sell
such securities proposed to be issued in such Private Offering in
accordance with this Section 5.8 on the same terms and conditions as the
sale of such securities in such proposed Private Offering.
The offer (the "Pre-emptive Right Notice") shall be made by the
Company to each Employee Party who owns of record at least 5% of the Shares
then outstanding on a fully diluted basis (excluding Stock Options) from
time to time determined as of the date of the Pre-emptive Right Notice and
to Investors LLC (a "Notified Shareholder"), and shall be dated, shall be
in writing and shall set forth the terms of the proposed Private Offering,
including, but not limited to, the consideration to be paid, and all other
terms and conditions related to the proposed Private Offering.
From and after the time that the Notified Shareholders receive
the Pre-emptive Right Notice, each Notified Shareholder shall have the
right, exercisable by giving written notice to the Company of such Notified
Shareholder's intent to exercise such right within 10 Business Days of the
Pre-emptive Right Notice, to subscribe for and purchase a number of
securities subject to the Pre-emptive Right Notice, on the terms set forth
in the Pre-emptive Right Notice, such that, after giving effect to the
issuance of securities subject to the Pre-emptive Right Notice and the
exercise of the rights of each Notified Shareholder set forth in this
Section 5.8 (including, for the purpose of this calculation, the issuance
of Common Stock upon conversion, exchange or exercise of any securities
convertible, exchangeable or exercisable into shares of Common Stock to be
issued in such Private Offering), the shares of Common Stock owned by such
Notified Shareholder (assuming the conversion of any securities held by
such Notified Shareholder convertible into Common Stock (whether or not
then convertible) and the exercise of any options owned by such Notified
Shareholder exercisable for Common Stock but taking appropriate account of
the exercise price of any stock options or warrants) shall represent the
same percentage of the outstanding shares of Common Stock owned by such
Notified Shareholder prior to the consummation of such Private Offering
(assuming the conversion of any securities held by such Notified
Shareholder (whether or not then convertible) convertible into Common Stock
and the exercise of any option owned by such Notified Shareholder
exercisable for Common Stock but taking appropriate account of the exercise
price of any stock options or warrants). Any Notified Shareholder will be
entitled at its option to purchase non-voting securities in place of voting
securities pursuant to a Pre-emptive Right Notice. If any Notified
Shareholder fails to give written notice of such Notified Shareholder's
election to exercise the rights of such Notified Shareholder set forth in
this Section 5.8 within 10 Business Days of the date of Pre-emptive Right
Notice, such Notified Shareholder shall be deemed to have waived the rights
granted to such Notified Shareholder under this Section 5.8 with respect to
the securities so offered under such Pre-emptive Right Notice.
Each Notified Shareholder that has exercised its rights to
purchase securities pursuant to this Section 5.8 shall, within 10 Business
Days from the date of the Pre-emptive Right Notice (such period to be
extended as may be required in order for necessary regulatory approvals to
be obtained) purchase the securities or other securities subject to the
Pre-emptive Right Notice in accordance with the terms of this Section 5.8.
Notwithstanding the foregoing, the rights provided for in this
Section 5.8 shall not apply (i) to any issuance to employees, directors or
consultants of the Company or its Subsidiary of securities or options to
purchase securities under an employee stock purchase plan or employee
benefits plan adopted by the Board of Directors of the Company, (ii) to any
dividend paid in securities or any subdivision or combination of
securities, (iii) to the issuance of securities in consideration for any
acquisition by the Company and (iv) the issuance of equity or equity
equivalents as ancillary parts of a debt financing transaction.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Notices. Any notice required to be given hereunder
shall be sufficient if in writing, and sent by facsimile transmission and
by courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to the Company:
Sovereign Specialty Chemicals, Inc.
Suite 2200
225 West Washington Street
Chicago, IL 60606
Attn. Chief Executive Officer
With a copy to:
Timothy E. Peterson
Fried, Frank, Harris, Shriver & Jacobson
4 Chiswell Street
London EC1Y 4UP
Facsimile: (020 7) 972 9602
With a copy to:
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, NY 10022
Facsimile: (212) 888-1459
If to Investors LLC:
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, NY 10022
Facsimile: (212) 888-1459
With a copy to:
Timothy E. Peterson
Fried, Frank, Harris, Shriver & Jacobson
4 Chiswell Street
London EC1Y 4UP
Facsimile: (020 7) 972 9602
If to an Employee:
To the address of Employee's place of business for the Company or
any Subsidiary.
or to such other address as any party shall specify by written notice so
given (if no address has been provided, the notice can be sent to the last
known address,) and such notice shall be deemed to have been delivered as
of the date so telecommunicated, personally delivered or mailed two
business days following the post-market date.
Section 6.2. Assignment; Binding Effect; Benefit; Additional
Signatories. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written
consent of the other parties, except by an Investors LLC Party to any other
Investors LLC Party. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
express or implied, is intended to confer on any person other than the
parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement. In connection with certain share
purchases or Stock Option grants, additional employees may become party to
this Agreement by executing the Agreement and by being added to Schedule I
hereof and shall be fully bound by, and subject to, all of the covenants,
terms and conditions of the Agreement as though original parties hereto and
shall be deemed Employees for all purposes hereof.
Section 6.3. Entire Agreement. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings (oral and
written) among the parties with respect thereto.
Section 6.4. Amendment. This Agreement may be amended by the
parties hereto at any time, provided that no amendment shall be made which
by law requires the further approval of stockholders of the Company without
obtaining such further approval (provided that each Employee Party accepts
and agrees that Covalt may enter into additional agreements with the
Company and Investors LLC which may modify his rights and obligations
hereunder.) This Agreement may not be amended or modified except by an
instrument in writing signed by or on behalf of the Company, Investors LLC
(or if Investors LLC is not a shareholder of the Company, Investors LLC
Parties constituting a majority of the Shares held by the Investors LLC
Parties) and Persons representing a majority of the Shares held by the
Employee Parties.
Section 6.5. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws. Each of the Employee Parties
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United
States of America located in the State of Delaware for any litigation
arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating
thereto except in such courts), waives any objection to the laying of venue
of any such litigation in such Delaware courts and agrees not to plead or
claim that such litigation brought in any such Delaware court has been
brought in an inconvenient forum.
Section 6.6. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies of this Agreement, each of which may be signed by less
than all of the parties hereto, but together all such copies are signed by
all of the parties hereto.
Section 6.7. Headings. Headings of the Articles and Sections of
this Agreement are for the convenience of the parties only and shall be
given no substantive or interpretive effect whatsoever.
Section 6.8. Interpretation. In this Agreement, unless the
context otherwise requires, words describing the singular number shall
include the plural and vice versa, "including" shall mean including,
without limitation, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and
partnerships and vice versa.
Section 6.9. Incorporation of Exhibits and Schedules. All
exhibits and schedules hereto are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
Section 6.10. Third Party Beneficiary. Investors is a third party
beneficiary under this Agreement.
Section 6.11. Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as
to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or otherwise affecting the validity
or enforceability of any of the terms or provisions of this Agreement in
any other jurisdiction. If any provision of this Agreement is so broad as
to be unenforceable, the provision shall be interpreted to be only so broad
as is enforceable.
Section 6.12. Enforcement of Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with its specific terms
or was otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in
any Delaware court, this being in addition to any other remedy to which
they may be entitled at law or in equity.
Section 6.13. Termination. The provision of Sections 3.1, 3.2,
3.3, 3.4, 4.1(d) and (e), 4.2, 4.3, 4.5, 4.6 and 5.8 shall terminate and
shall cease to be binding on the parties hereto upon an IPO. The rights and
obligations of the Covalt Family Group under Sections 5.1 to 5.5 shall
terminate and shall cease to be binding on the parties hereto at such time
as less than 1% of the then outstanding Shares on a fully diluted basis
(excluding stock options) are owned by the Covalt Family Group.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
SSCI INVESTORS LLC
By: /s/ Brian R. Hoesterey
-----------------------------------------
Name: Brian R. Hoesterey
---------------------------------------
Title: Vice President
--------------------------------------
SOVEREIGN SPECIALTY CHEMICALS, INC
By: /s/ John R. Mellett
-----------------------------------------
Name: John R. Mellett
---------------------------------------
Title: Vice President
--------------------------------------
/s/ Robert Covalt
--------------------------------------------
Robert Covalt
/s/ Robert Covalt
--------------------------------------------
Tregooden Partners, L.P.
/s/ Robert Covalt
--------------------------------------------
Nautical Partners, L.P.
/s/ Robert Covalt
--------------------------------------------
Serendipity Partners, L.P.
/s/ Louis Pace
--------------------------------------------
Louis Pace
/s/ Martyn Howell-Jones
--------------------------------------------
Martyn Howell-Jones
/s/ Gerard A. Loftus
--------------------------------------------
Gerard A. Loftus
/s/ Paul Gavlinski
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Paul Gavlinski
/s/ Stephan Zavodny
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Stephan Zavodny
/s/ Richard W. Johnston
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Richard W. Johnston
/s/ Richard Bashford
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Richard Bashford
/s/ Peter Longo
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Peter Longo
/s/ Mark Longo
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Mark Longo
/s/ Karen Kempa Seeberg
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Karen Kempa Seeberg
/s/ Frederick Quinn
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Frederick Quinn
/s/ John R. Mellett
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John R. Mellett
/s/ Anshyang Albert Lin
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Anshyang Albert Lin
/s/ Terence Cadby
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Terence Cadby
/s/ Gary Cassata
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Gary Cassata
/s/ Susan Cooper
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Susan Cooper
/s/ Brian Dorrenkott
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Brian Dorrenkott
/s/ Kevin Johnston
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Kevin Johnston
/s/ Richard Lawrence
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Richard Lawrence
/s/ Robert D. Richardson
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Robert D. Richardson
/s/ Ashok Shah
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Ashok Shah
/s/ Patrick W. Stanton
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Patrick W. Stanton
/s/ Paul Szabo
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Paul Szabo
/s/ George Noggle
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George Noggle
/s/ R. Thurgood
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R. Thurgood
EXHIBIT 99.2
MAJORITY OWNERSHIP OF CHICAGO-BASED SOVEREIGN SPECIALTY CHEMICALS SOLD TO
AEA INVESTORS 01/10/2000 PR Newswire (Copyright (c) 2000, PR Newswire)
CHICAGO, Jan. 10 /PRNewswire/ -- SOVEREIGN SPECIALTY CHEMICALS , L.P., the
parent partnership of SOVEREIGN SPECIALTY CHEMICALS , Inc., today announced
the closing of the sale of 75% of its 100% ownership stake in SOVEREIGN
SPECIALTY CHEMICALS , Inc., to an investor group led by AEA Investors Inc.,
effective December 30, 1999. The transaction has been structured with the
intent of complying with the covenants under the Indenture relating to
Sovereign's 9-1/2% Senior Subordinated Notes due 2007. However, Sovereign
intends to advise holders of the 9-1/2% Senior Subordinated Notes due 2007
of its intent to make the change-of-control offer to purchase the notes
required by the terms of the Indenture. "The support of AEA will enhance
our company's continued growth and development," said Robert Covalt, CEO of
Sovereign. AEA Investors Inc. is an international private equity firm
supported by industrial families and chief executives of major corporations
from around the world. SOVEREIGN SPECIALTY CHEMICALS is a leading
manufacturer and marketer of adhesives, sealants and coatings for various
industrial and consumer applications. Since its inception in early 1996,
Sovereign has grown its revenues to approximately $250 million through a
combination of organic growth and several acquisitions. Sovereign was
formed by Banc One Equity Capital, Waud Capital Partners and Robert Covalt.
J.P. Morgan served as exclusive financial advisor to Sovereign on this
transaction. Contact: /CONTACT: Robert Covalt of SOVEREIGN SPECIALTY
CHEMICALS , L.P., 312-419-4048/ 17:35 EST
