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Exhibit 4.2
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of JANUARY 31, 2000 (the "AGREEMENT"),
by and among WATKINS-JOHNSON COMPANY, a California corporation (the "COMPANY"),
FOX PAINE CAPITAL FUND, L.P., a Delaware limited partnership (the "FUND"), FPC
INVESTORS, L.P., a Delaware limited partnership ("FPC INVESTORS"), WJ
COINVESTMENT FUND I, LLC, a Delaware limited liability company, WJ COINVESTMENT
FUND II, LLC, a Delaware limited liability company, WJ COINVESTMENT FUND III,
LLC, a Delaware limited liability company, WJ COINVESTMENT FUND IV, LLC, a
Delaware limited liability company (WJ Coinvestment Fund I, LLC, WJ Coinvestment
Fund II, LLC, WJ Coinvestment Fund III, LLC and WJ Coinvestment Fund IV, LLC,
together with the Fund and FPC Investors, "FPC"), the WATKINS TRUST DATED
SEPTEMBER 19, 1988 (the "WATKINS TRUST"), Malcolm J. Caraballo, Thomas R.
Kritzer and Ralph E. Hoover (such individuals, together with any additional
individuals as described in the immediately subsequent sentence, the "MANAGEMENT
SHAREHOLDERS," and, collectively with the Trust, the "OTHER SHAREHOLDERS").
Employees, directors, consultants and certain other Persons (as defined below)
having significant business relationships with the Company and its Affiliates
(as defined below) may be issued shares of Common Stock (as defined below) (or
other equity securities of the Company) from time to time in the discretion of
the Board of Directors of the Company and, if so issued, the Company, without
the consent of any other party hereto, may amend this Agreement to add any of
such Persons as an additional Management Shareholder hereunder, subject to such
Person becoming a signatory to this Agreement. The parties hereto (other than
the Company) and any other Person who shall hereafter acquire shares of Common
Stock of the Company (or other equity securities of the Company) and who becomes
a signatory hereto are sometimes hereinafter referred to individually as a
"SHAREHOLDER" and collectively as the "SHAREHOLDERS".
RECITALS
WHEREAS, the Company, as of the Effective Date (as defined herein),
will have an authorized capital stock consisting of 100,000,000 shares of Common
Stock, without par value (the "COMMON STOCK"), each share of which is entitled
to one vote on all shareholder matters as more specifically provided in the
articles of incorporation of the Company, as amended (the "ARTICLES"), and of
which not more than 30,000,000 shares will be issued and outstanding immediately
after the Effective Date (including as a result of the purchase of shares of
Common Stock by the Management Shareholders pursuant to the Management
Subscription Agreement (as defined below)). In addition, the Company will have
reserved, as of the Effective Date, 5,150,000 shares of Common Stock for
issuance pursuant to the Company's 2000 Stock Incentive Plan (the "STOCK
INCENTIVE PLAN").
WHEREAS, the Company intends to consummate a twenty-for-one stock split
with respect to the Common Stock immediately following the closing of the Merger
(as defined below), and, as a result, references in this Agreement to the Common
Stock and the Cost Per Share assume the consummation of said stock split as if
such references had been adjusted in accordance with Section 6.8 hereof;
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WHEREAS, the Company has agreed, concurrently herewith, to issue shares
of Common Stock to the Management Shareholders pursuant to the terms of a
Management Subscription Agreement dated as of January 31, 2000 (the "MANAGEMENT
SUBSCRIPTION AGREEMENT") entered into between the Company and such Management
Shareholders;
WHEREAS, in connection with the Agreement and the Plan of Merger dated
October 25, 1999 (the "MERGER AGREEMENT"), between the Company and FP-WJ
Acquisition Corp., pursuant to which FPC will acquire a majority of the Common
Stock (such transaction, collectively with the other transactions contemplated
by the Merger Agreement, the "MERGER"), the Company has entered into employment
agreements (collectively with any employment agreements entered into by the
Company following the date hereof, the "EMPLOYMENT AGREEMENTS") and/or option
agreements ("OPTION AGREEMENTS") with certain Management Shareholders, that
provide for, among other things, the grant of Options to such Management
Shareholders.
WHEREAS, the parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock which the parties
hereto own or may hereafter acquire, and to provide for certain rights and
obligations in respect thereof as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"AFFECTED HOLDERS" shall have the meaning ascribed to it in Section
6.11 hereof.
"AFFILIATE" of a Person shall mean a Person directly or indirectly
controlled by, controlling or under common control with such Person.
"AGREEMENT" shall have the meaning ascribed to it in the Introduction
hereof.
"ARTICLES" shall have the meaning ascribed to it in the Recitals
hereof.
"BOARD" shall mean the Board of Directors of the Company.
"BUY-OUT NOTE" shall mean an unsecured promissory note of the Company,
or a direct or indirect subsidiary thereof, which shall have a stated maturity
of (a) five (5) years or (b) if at the end of such period there exists, or
payment of such note would result in, an event of default (or an event which
with notice or lapse of time or both would constitute an event of default) under
any of the agreements relating to the financing of the transactions contemplated
by the Merger (or any other indebtedness), the first date on which such event of
default ceases to exist or would cease to be a result, shall accrue interest at
seven (7) percent per annum, shall be prepayable at the option of the Company or
such subsidiary at
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any time, in whole or in part, at its principal amount plus any accrued and
unpaid interest, shall provide for the reimbursement of reasonable expenses
incurred by the holder to enforce the note and shall accelerate upon the earlier
of a Change of Control or the consummation of an IPO.
"BY-LAWS" shall mean the by-laws of the Company, as the same shall be
in effect from time to time.
"CHANGE OF CONTROL" shall mean (1) the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) other than FPC and its Affiliates of a majority of the outstanding
voting stock of the Company or (2) the sale of or other disposition (other than
by way of merger or consolidation) of all or substantially all of the assets of
the Company and its subsidiaries taken as a whole to any Person or group of
Persons, other than to a Person (or group of Persons) a majority of the
outstanding voting stock (or other interests) of which are beneficially owned by
FPC and its Affiliates.
"CLAIMS" shall mean losses, claims, damages or liabilities, joint or
several, actions or proceedings (whether commenced or threatened).
"COMMON STOCK" shall have the meaning ascribed to it in the Recitals
hereof.
"COMPANY" shall have the meaning ascribed to it in the Introduction
hereof.
"COMPANY'S LINE OF BUSINESS" shall mean the sale, manufacture,
distribution, marketing or provision of products, components, equipment,
hardware, other technology or services in the wireless communications industry,
which are the same as, or substantially similar to or competitive with, the
products, components, equipment, hardware, other technology or services sold,
manufactured, distributed, marketed or provided by the Company or any of its
Affiliates, or proposed to be sold, manufactured, distributed, marketed or
provided by the Company or any of its Affiliates, at the time that a restriction
on a Management Shareholder becomes effective pursuant to Article V of this
Agreement.
"COST PER SHARE" shall mean $2.05625; provided that, with respect to
any shares of Common Stock (i) issued or sold by the Company following the
Effective Date, the Cost Per Share shall be equal to the actual cost paid for
such shares or (ii) granted as Restricted Stock or otherwise for non-cash
consideration, the Cost Per Share shall be an amount agreed upon between the
acquiring shareholder and the Company as of the date of such grant.
"COVENANT AREA" as to any Management Shareholder shall mean each city,
county, state and similar political subdivision in the United States in which
such Management Shareholder was engaged on behalf of the Company or its
Affiliates in the Company's Line of Business.
"COVENANT PERIOD" shall mean the term of a Management Shareholder's
employment or other engagement by the Company or any of its Affiliates PLUS, in
the event that the Company or any of its Affiliates repurchases such Management
Shareholder's entire equity interest in the Company in connection with the
termination of such employment or
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engagement, an additional period equal to eighteen (18) months from and after
the termination thereof.
"DEMAND REGISTRATION" shall have the meaning ascribed to it in Section
3.1.2 hereof.
"DRAG-ALONG RIGHT" shall have the meaning ascribed to it in Section
2.5.1 hereof.
"DRAG-ALONG SELLER" shall have the meaning ascribed to it in Section
2.5.2 hereof.
"EFFECTIVE DATE" shall have the meaning ascribed to it in Section
6.1(a) hereof.
"EMPLOYMENT AGREEMENTS" shall have the meaning ascribed to it in the
Recitals hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" shall mean, as of any given date, the mean between
the highest and lowest reported sales prices of the Common Stock on the New York
Stock Exchange or, if not listed on such exchange, on any other national
securities exchange on which the Common Stock is listed or, if not so listed, on
the Nasdaq National Market. If such sales prices are not so available, the Fair
Market Value of the Common Stock shall be as reasonably determined by the Board
in light of all circumstances (including, without limitation, historical and
projected earnings and revenues of the Company and the Company's future
prospects).
"FOX PAINE" shall have the meaning ascribed to it in Section 6.16.
"FPC" shall have the meaning ascribed to it in the Introduction hereof.
"FPC INVESTORS" shall have the meaning ascribed to it in the
Introduction hereof.
"FPC RECIPIENTS" shall have the meaning ascribed to it in Section
2.3.1.
"IPO" shall mean an underwritten initial public offering or public
offerings (on a cumulative basis) of shares of Common Stock pursuant to a
registration statement or registration statements under the Securities Act with
aggregate gross proceeds to the Company of at least $50 million.
"MANAGEMENT SHAREHOLDERS" shall have the meaning ascribed to it in the
Introduction hereof.
"MANAGEMENT SUBSCRIPTION AGREEMENT" shall have the meaning ascribed to
it in the Recitals hereof.
"MERGER" shall have the meaning ascribed to it in the Recitals hereof.
"MERGER AGREEMENT" shall have the meaning ascribed to it in the
Recitals hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
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"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"OFFER SHARES" shall have the meaning ascribed to it in Section 2.4.1.
"OFFEREE SHAREHOLDER" shall have the meaning ascribed to it in Section
2.4.1.
"OFFEROR SHAREHOLDER" shall have the meaning ascribed to it in Section
2.4.1.
"OPTIONS" shall mean options to purchase shares of Common Stock from
the Company, whether granted pursuant to the Stock Incentive Plan or otherwise.
"OPTION AGREEMENT" shall have the meaning ascribed to it in the
Recitals hereof.
"OTHER SHAREHOLDERS" shall have the meaning ascribed to it in the
Introduction hereof.
"PERMITTED TRANSFER" shall have the meaning ascribed to it in Section
2.3.2.
"PERMITTED TRANSFEREES" shall have the meaning ascribed to it in
Section 2.3.4.
"PERSON" shall mean an individual, corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization,
government (or any department or agency thereof) or other entity.
"PIGGYBACK NOTICE" shall have the meaning ascribed to it in Section
3.1.1 hereof.
"PIGGYBACK REGISTRATION" shall have the meaning ascribed to it in
Section 3.1.1 hereof.
"PROPOSED TRANSFEREE" means a Person or group as defined in Section
13(d)(3) of the Exchange Act, other than FPC or its Affiliates (whether any such
Affiliate is such prior to or upon consummation of the proposed Transfer, but
not solely by virtue of becoming a party to this Agreement), to whom Common
Stock is proposed to be Transferred pursuant to the terms of Section 2.4 or
Section 2.5 of this Agreement.
"REGISTRABLE SECURITIES" shall mean the shares of Common Stock;
provided, however, as to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred and
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company, (iv) such securities shall
have ceased to be outstanding (and, in the case of shares of Common Stock
underlying Options, such shares of Common Stock shall have ceased to be
outstanding after issuance pursuant to the exercise of such options), or (v) in
the case of shares of Common Stock held by an Other Shareholder, such securities
shall have been transferred to any Person other than a Shareholder or a
Permitted Transferee.
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"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with Article III of this Agreement, including
without limitation, (i) all SEC, stock exchange and Nasdaq and NASD registration
and filing fees, (ii) all fees and expenses of complying with securities or
"blue sky" laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with "blue sky" qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses, (iv) the fees
and disbursements of counsel for the Company and of the Company's independent
public accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance, (v)
the reasonable fees and disbursements of one counsel retained by the
Shareholders (if FPC is one of the selling Shareholders, such counsel to be
selected by FPC) as a group in connection with each such registration, (vi) any
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
in connection with the requested registration, including any fee payable to a
qualified independent underwriter within the meaning of the rules of the NASD,
but excluding underwriting discounts and commissions and transfer taxes, if any,
(vii) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties) and (viii) securities acts liability insurance (if the
Company elects to obtain such insurance).
"RESTRICTED STOCK" shall have the meaning ascribed to it in the Stock
Incentive Plan.
"RULE 144" shall mean Rule 144 under the Securities Act.
"SALE NOTICE" shall have the meaning ascribed to it in Section 2.4.1.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 3.1 SALE NUMBER" shall have the meaning ascribed to it in
Section 3.1.4 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHAREHOLDER" and "SHAREHOLDERS" shall have the meaning ascribed to
such terms in the Introduction hereof.
"STOCK INCENTIVE PLAN" shall have the meaning ascribed to it in the
Recitals hereof.
"TAG-ALONG RIGHT" shall have the meaning ascribed to it in Section
2.4.4(a) hereof.
"TAG-ALONG SELLER" shall have the meaning ascribed to it in Section
2.4.4(b) hereof.
"TAG-ALONG SHARES" shall have the meaning ascribed to it in Section
2.4.2 hereof.
"TRANSFER" shall mean to sell, assign, pledge or encumber or otherwise
transfer or convey, directly or indirectly, whether or not for consideration.
"TRANSFEREE" shall mean any Person to whom a Transfer is made,
regardless of the method of Transfer.
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"TRANSFEROR" shall mean any Person by whom a Transfer is made,
regardless of the method of Transfer.
"VIOLATION" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
"WATKINS" shall have the meaning ascribed to it in Section 2.3.3.
"WATKINS TRUST" shall have the meaning ascribed to it in the
Introduction hereof.
ARTICLE II
RESTRICTIONS ON TRANSFERS
2.1 GENERAL LIMITATION ON TRANSFERS.
2.1.1 TRANSFERS GENERALLY. (a) Any Other Shareholder may, at
any time prior to an IPO, Transfer any shares of Common Stock in accordance with
Section 2.3, 2.4 or 2.5 and only in accordance with such provisions and any
Transfer by any Other Shareholder prior to an IPO of any shares of Common Stock
owned as of the date hereof or hereafter acquired not in accordance with such
provisions shall be null and void.
(b) As used in this Agreement, Common Stock shall include any
shares of Restricted Stock of the Company granted to Management Shareholders;
PROVIDED, HOWEVER, that to the extent the Transfer thereof is prohibited or
restricted, no rights to Transfer, including pursuant to Section 2.4 or Article
III, shall be granted hereunder.
2.1.2 RECORDATION. The Company shall not record upon its books
any Transfer of shares of Common Stock held or owned by any of the Shareholders
to any other Person except Transfers in accordance with this Agreement.
2.1.3 OBLIGATIONS OF TRANSFEREES. No Transfer of shares of
Common Stock by a Shareholder otherwise permitted pursuant to this Agreement
(other than pursuant to a Demand Registration, a Piggyback Registration or
pursuant to a Tag-Along Right or Drag-Along Right) shall be effective unless (x)
the Transferee (including a Permitted Transferee pursuant to Section 2.3) shall
have executed an appropriate document in form and substance reasonably
satisfactory to the Company confirming that (i) the Transferee takes such shares
subject to all the terms and conditions of this Agreement to the same extent as
its Transferor was bound by and entitled to the benefits of such provisions and
(ii) such shares shall bear legends, substantially in the forms required by
Section 2.6, and (y) such document shall have been delivered to and approved by
the Company prior to such Transferee's acquisition of such shares.
2.1.4 TRANSFERS TO COMPETITORS. Notwithstanding anything to
the contrary in this Agreement, no Other Shareholder shall, at any time,
directly or indirectly, Transfer any shares of Common Stock to any Person who is
a competitor of the Company or any of its Affiliates or to any Affiliate of such
a competitor (other than Transfers to the Company and its Affiliates), unless
such Transfer (i) is made in connection with the exercise of a Tag-Along Right
pursuant to Section 2.4 or in connection with the exercise of a Drag-Along Right
pursuant to Section 2.5, in which event such sale may be effected only in
accordance
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with such Section 2.4 or Section 2.5, as applicable, or (ii) is made in
accordance with the terms of this Agreement and is made pursuant to a widely
distributed, underwritten public offering registered under the Securities Act
(or an underwritten offering pursuant to the exercise of such Shareholder's
piggyback registration rights pursuant to Section 3.1.1 hereof) or pursuant to a
sale effected through an open market, nondirected broker's transaction pursuant
to Rule 144 in which the seller does not know that the buyer is a competitor.
For purposes of this provision, the good faith determination of a majority of
the entire Board that a proposed Transferee is a "competitor," made within
thirty (30) days of written notice to the Board of the proposed Transfer, shall
in all respects be conclusive.
2.2 COMPLIANCE WITH SECURITIES LAWS. No Shareholder shall Transfer
any shares of Common Stock unless the Transfer is expressly permitted by and
made in accordance with the terms of this Agreement and (i) the Transfer is
pursuant to an effective registration statement under the Securities Act and in
compliance with any other applicable federal securities laws and state
securities or "blue sky" laws or (ii) such Shareholder shall have furnished: (x)
the Company with an opinion of counsel, if reasonably requested by the Company,
which opinion and counsel shall be reasonably satisfactory to the Company, to
the effect that no such registration is required because of the availability of
an exemption from registration under the Securities Act and that the Transfer
otherwise complies with this Agreement and any other applicable federal
securities laws; and (y) such representations and covenants of such Shareholder
as are reasonably requested by the Company.
2.3 PERMITTED TRANSFERS.
2.3.1 FPC TRANSFERS. (a) FPC and any Affiliate of FPC shall be
free to Transfer shares of Common Stock to any Person, in whole at any time, or
in part from time to time; PROVIDED, HOWEVER, that if such Person is not an
Affiliate of FPC or any Person holding an investment or other equity interest in
FPC (such Persons who are Affiliates of FPC or who hold an investment or other
equity interest in FPC, the "FPC RECIPIENTS"), prior to an IPO, such Transfer
shall be subject to Section 2.4 and Section 2.5 hereof.
(b) No transfer of shares of Common Stock by FPC or an
Affiliate of FPC otherwise permitted pursuant to this Section 2.3.1 shall be
effective unless the Transferee (whether or not an Affiliate of FPC) shall have
executed an appropriate document in form and substance reasonably satisfactory
to the Company confirming that the Transferee takes such shares subject to all
the terms and conditions of this Agreement to the same extent as its Transferor
was bound by and entitled to the benefits of such provisions.
2.3.2 MANAGEMENT SHAREHOLDER TRANSFERS. The following
Transfers by Management Shareholders of shares of Common Stock shall be deemed
permitted pursuant to Section 2.1.1: (i) to or among such Management
Shareholder's spouse, children, grandchildren or other living descendants, or to
a trust of which there are no principal (i.e., corpus) beneficiaries other than
the grantor and/or one or more of such Management Shareholder, spouse or
described relatives, and provided that the existing beneficiaries and/or
trustee(s) and/or grantor(s) of such trust have the power to act with respect to
the trust's assets without court approval; (ii) to a legal representative of
such Management Shareholder in the event such Management Shareholder becomes
mentally incompetent or to such Management Shareholder's personal representative
following the death of such
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Management Shareholder; and (iii) with the prior written approval of the
Company, which approval may be granted or withheld by the Board in its sole and
absolute discretion.
2.3.3 TRUST TRANSFERS. The following Transfers by the Trust of
shares of Common Stock shall be deemed permitted pursuant to Section 2.1.1: (i)
to or among the beneficiaries of the Trust or the spouse, children,
grandchildren or other living descendants of Dr. Dean A. Watkins ("WATKINS"), or
to a trust or trusts of which there are no principal (i.e., corpus)
beneficiaries other than Watkins and/or such beneficiaries, spouse or described
relatives, and provided that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval; (ii) to a charitable organization qualified for
tax exempt status pursuant to Section 501(c)(3) of the Internal Revenue Code of
1986, as amended; and (iii) with the prior written approval of the Company,
which approval may be granted or withheld by the Board in its sold and absolute
discretion.
2.3.4 PERMITTED TRANSFEREES. Transferees to whom Transfers are
permitted pursuant to clauses (i), (ii) and (iii) of Sections 2.3.2 and 2.3.3
are referred to herein as "PERMITTED TRANSFEREES." Any such permitted Transfer
shall be subject to the terms of this Agreement, including compliance with
Sections 2.1.3, 2.1.4 and 2.2.
2.3.5 TRANSFER BY PERMITTED TRANSFEREES. The restrictions
contained in Section 2.1.1 of this Agreement with respect to Transfers by Other
Shareholders of shares of Common Stock shall not apply to any Transfer by a
Permitted Transferee of an Other Shareholder to such Other Shareholder or to
another Permitted Transferee of such Other Shareholder, and any such Transferee
shall also be a "Permitted Transferee," subject to the provisions of Section
2.3.4. Notwithstanding anything in this Section 2.3.5 to the contrary, no
Permitted Transferee may effect or allow a Transfer of such shares to any Person
to whom such transferor would not be permitted to effect or allow a Transfer of
such shares pursuant to the terms of this Agreement.
2.3.6 OTHER TRANSFER RESTRICTIONS. The restrictions contained
in Sections 2.1.1, 2.4 and 2.5 hereof and the provisions regarding Permitted
Transferees contained in this Section 2.3 shall be in addition to and not in
lieu or limitation of any restrictions on the ownership or Transfer of shares of
Common Stock (including with respect to any Restricted Stock) contained in any
stock subscription agreement or employment agreement or any analogous provision
of any employment, compensation or benefit agreement or arrangement or other
agreement between the Company or any of its Affiliates and any Shareholder;
PROVIDED, HOWEVER, that upon the termination of any such agreement or
arrangement or lapsing of such restrictions, the restrictions contained herein
shall continue in full force and effect pursuant to this Agreement.
2.4 TAG-ALONG RIGHTS.
2.4.1 SALE NOTICE. If prior to the consummation of an IPO (a)
FPC proposes to sell any of the Common Stock owned by it to an unaffiliated
third party or (b) any Other Shareholder proposes to sell any of the Common
Stock owned by it to an unaffiliated third party for cash, in each case other
than (i) by FPC or an Affiliate of FPC to an FPC Recipient pursuant to Section
2.3.1 of this Agreement, (ii) pursuant to a Demand
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Registration (which affords piggyback registration rights pursuant to Section
3.1) or Piggyback Registration, or (iii) by an Other Shareholder to a Permitted
Transferee thereof (any proposing Shareholder (it being understood that such
term refers to FPC if any Person comprising FPC is a proposing Shareholder), an
"OFFEROR SHAREHOLDER"), then the Offeror Shareholder shall first give written
notice (the "SALE NOTICE") to the Company and to each of the other Shareholders
(such other Shareholders being referred to herein as the "OFFEREE
SHAREHOLDERS"), stating that Offeror Shareholder desires to make such sale,
referring to Section 2.4 of this Agreement, specifying the number of shares of
Common Stock proposed to be sold by the Offeror Shareholder pursuant to the
offer (the "OFFER SHARES"), and specifying the price, the form of consideration
and the material terms pursuant to which such sale is proposed to be made,
including without limitation any indemnification obligations of the Offeror
Shareholder. Transfers made in accordance with this Section 2.4 shall be deemed
permitted pursuant to Section 2.1.1.
2.4.2 TAG-ALONG ELECTION. Within seven (7) days of the date of
receipt of the Sale Notice, each Offeree Shareholder shall deliver to the
Offeror Shareholder and to the Company and FPC a written notice stating whether
such Offeree Shareholder elects to sell a pro rata portion of its Common Stock
(equal to (A) the total number of shares of Common Stock owned by such Offeree
Shareholder, multiplied by (B) a fraction, (i) the numerator of which is the
number of Offer Shares and (ii) the denominator of which is the total number of
shares of Common Stock held by the Offeror Shareholder) to such Proposed
Transferee on the same terms and conditions as the Offeror Shareholder (with
respect to each such Offeree Shareholder, its "TAG-ALONG SHARES"). An election
pursuant to the first sentence of this Section 2.4.2 shall constitute an
irrevocable commitment by the Offeree Shareholder making such election to sell
such Common Stock to the Proposed Transferee if the sale of Offer Shares to the
Proposed Transferee occurs on the terms contemplated by the Sale Notice.
2.4.3 RIGHT OF FIRST REFUSAL. Notwithstanding anything in this
Section 2.4 to the contrary, prior to the consummation of an IPO, (a) in the
event that FPC is not the Offeror Shareholder and (b) whether or not a Proposed
Transferee would otherwise consummate such a Transfer, FPC shall have the right
(assignable, in whole or in part, by FPC to any Affiliate of FPC) to purchase
all, but not less than all, of the Offer Shares and the Tag-Along Shares on the
terms set forth in the Sale Notice by delivering written notice of the exercise
of such right to the Offeror Shareholder within fourteen (14) days of FPC's
receipt of the Sale Notice. In the event of FPC's exercise of such right, FPC
shall be deemed a "PROPOSED TRANSFEREE" for the purposes of Section 2.4.4 hereof
(but shall not become an Other Shareholder with respect to such shares), which
Section shall otherwise be applicable to such Transfer.
2.4.4 SELLER'S RIGHTS TO TRANSFER.
(a) THIRD PARTY SALE; TAG-ALONG BUYER. A sale to a Proposed
Transferee pursuant to Section 2.4 shall only be consummated if the Proposed
Transferee shall purchase, not earlier than 21 and not later than 120 days of
the date of the Sale Notice, concurrently with and on the same terms and
conditions and at the same price as the Offer Shares, all of each Offeree
Shareholder's Tag-Along Shares with respect to such sale, in accordance with
their elections pursuant to Section 2.4.2 (the "TAG-ALONG RIGHT").
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(b) SALE AGREEMENT. Each Offeree Shareholder electing to sell
Tag-Along Shares (a "TAG-ALONG SELLER") agrees to cooperate in consummating such
a sale, including, without limitation, by becoming a party to the sales
agreement and all other appropriate related agreements, delivering at the
consummation of such sale, stock certificates and other instruments for such
Common Stock duly endorsed for transfer, free and clear of all liens and
encumbrances, and voting or consenting in favor of such transaction (to the
extent a vote or consent is required) and taking any other necessary or
appropriate action in furtherance thereof, including the execution and delivery
of any other appropriate agreements, certificates, instruments and other
documents. The foregoing notwithstanding, in connection with such sale, a
Tag-Along Seller, as such, shall not be required to make any representations and
warranties with respect to the Company or the Company's business or with respect
to any other seller. In addition, each Tag-Along Seller shall be severally
responsible for its proportionate share of the expenses of sale incurred by the
sellers in connection with such sale and the obligations and liabilities
incurred by the sellers in connection with such sale. Such obligations and
liabilities shall include (to the extent such obligations are incurred)
obligations and liabilities for indemnification (including for (x) breaches of
representations and warranties made in connection with such sale by the Company
or any other seller with respect to the Company or the Company's business, (y)
breaches of covenants and (z) other matters), and shall also include amounts
paid into escrow or subject to holdbacks, and amounts subject to post-closing
purchase price adjustments. The foregoing notwithstanding, (1) without the
written consent of a Tag-Along Seller, the amount of such obligations and
liabilities for which such Tag-Along Seller shall be responsible shall not
exceed the gross proceeds received by such Tag-Along Seller in such sale and (2)
a Tag-Along Seller shall not be responsible for the fraud of any other seller or
for any indemnification obligations and liabilities for breaches of
representations and warranties made by any other seller with respect to such
other seller's (i) ownership of and title to shares of capital stock of the
Company, (ii) organization, (iii) authority and (iv) conflicts and consents.
(c) NO LIABILITY. Notwithstanding any other provision
contained in this Section 2.4, there shall be no liability on the part of the
Company or the Offeror Shareholder in the event that the sale pursuant to this
Section 2.4 is not consummated for any reason whatsoever. The decision whether
to effect a Transfer pursuant to this Section 2.4 shall be in the sole and
absolute discretion of the Offeror Shareholder.
2.5 DRAG-ALONG RIGHT.
2.5.1 EXERCISE. If FPC and its Affiliates propose to make a
bona fide sale of no fewer than seventy-five percent (75%) of its shares of
Common Stock (at the time of such proposed sale) to a Proposed Transferee prior
to the occurrence of an IPO, pursuant to a stock sale, merger, business
combination, recapitalization, consolidation, reorganization, restructuring or
similar transaction, or series of transactions, FPC shall have the right (a
"DRAG-ALONG RIGHT"), exercisable upon fifteen (15) days' prior written notice to
the Other Shareholders, to require the other Shareholders to sell a
proportionate amount of their shares of Common Stock to the Proposed Transferee
on the same terms and conditions and at the same price as FPC.
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2.5.2 SALE AGREEMENT. Each Shareholder selling shares of
Common Stock pursuant to a transaction contemplated by this Section 2.5 (a
"DRAG-ALONG SELLER") agrees to cooperate in consummating such a sale, including,
without limitation, by becoming a party to the sales agreement and all other
appropriate related agreements, delivering at the consummation of such sale
stock certificates and other instruments for such shares of Common Stock duly
endorsed for transfer, free and clear of all liens and encumbrances, and voting
or consenting in favor of such transaction (to the extent a vote or consent is
required) and taking any other necessary or appropriate action in furtherance
thereof, including the execution and delivery of any other appropriate
agreements, certificates, instruments and other documents. The foregoing
notwithstanding, in connection with such sale, a Drag-Along Seller, as such,
shall not be required to make any representations and warranties with respect to
the Company or the Company's business or with respect to any other seller. In
addition, each Drag-Along Seller shall be severally responsible for its
proportionate share of the expenses of sale incurred by FPC in connection with
such sale. Such obligations and liabilities shall include (to the extent such
obligations are incurred) obligations and liabilities for indemnification
(including for (x) breaches of representations and warranties made in connection
with such sale by the Company or any other seller with respect to the Company or
the Company's business, (y) breaches of covenants and (z) other matters), and
shall also include amounts paid into escrow or subject to holdbacks, and amounts
subject to post-closing purchase price adjustments. The foregoing
notwithstanding, (1) without the written consent of a Drag-Along Seller, the
amount of such obligations and liabilities for which such Drag-Along Seller
shall be responsible shall not exceed the gross proceeds received by such
Drag-Along Seller in such sale and (2) a Drag-Along Seller shall not be
responsible for the fraud of any other seller or any indemnification obligations
and liabilities for breaches of representations and warranties made by any other
seller with respect to such other seller's (i) ownership of and title to shares
of capital stock of the Company, (ii) organization, (iii) authority and (iv)
conflicts and consents.
2.5.3 NO LIABILITY. Notwithstanding any other provision
contained in this Section 2.5, there shall be no liability on the part of the
Company or FPC and/or its Affiliates in the event that the sale pursuant to this
Section 2.5 is not consummated for any reason whatsoever. The decision whether
to effect a Transfer pursuant to this Section 2.5 shall be in the sole and
absolute discretion of FPC and its Affiliates.
2.6 ADDITIONAL PROVISIONS RELATING TO RESTRICTIONS ON TRANSFERS.
2.6.1 LEGENDS. Each of the Shareholders hereby agrees that
each outstanding certificate representing shares of Common Stock held or owned
by such Shareholder or its Transferee, and issued prior to the date when the
applicable restrictions are terminated pursuant to Section 2.6.3 shall bear
endorsements reading substantially as follows:
(a) The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or under the
securities laws of any state and may not be transferred, sold or otherwise
disposed of except pursuant to an effective registration statement or pursuant
to an exemption from registration under said Act and applicable state securities
laws.
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(b) The securities represented by this certificate are subject
to the terms and conditions set forth in a Shareholders Agreement, dated as of
January 31, 2000, as amended from time to time, copies of which may be obtained
from the issuer or from the holder of this security. No transfer of such
securities will be made on the books of the issuer unless accompanied by
evidence of compliance with the terms of such agreement.
Each outstanding certificate representing shares of Common Stock shall
also bear any legend as the Company may deem appropriate.
2.6.2 COPY OF AGREEMENT. A copy of this Agreement shall be
filed with the corporate secretary of the Company and kept with the records of
the Company and shall be made available for inspection by any Shareholder of the
Company at the principal executive offices of the Company.
2.6.3 TERMINATION OF RESTRICTIONS. The restriction referred to
in the endorsement required pursuant to Section 2.6.1(a) shall cease and
terminate as to any particular shares of Common Stock when, in the reasonable
opinion of counsel for the Company, such restriction is no longer required in
order to assure compliance with the Securities Act. The Company or the Company's
counsel, at their election, may request from any Shareholder a certificate or an
opinion of such Shareholder's counsel with respect to any relevant matters in
connection with the removal of the endorsement set forth in Section 2.6.1(a)
from such Shareholder's stock certificates, any such certificate or opinion of
counsel to be reasonably satisfactory to the Company and its counsel. The
restrictions referred to in Section 2.6.1(b) shall cease and terminate as to any
particular shares of Common Stock when, in the reasonable opinion of counsel for
the Company, the provisions of this Agreement are no longer applicable to such
shares or this Agreement shall have terminated in accordance with its terms. Any
other restrictions referred to in any other legends required pursuant to Section
2.6.1 shall cease and terminate when, in the reasonable opinion of counsel for
the Company, such restrictions are no longer applicable. Whenever such
restrictions shall cease and terminate as to any shares of Common Stock, the
Shareholder holding such shares shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any, if such
unlegended shares are being delivered and transferred to any Person other than
the registered holder thereof), new certificates for a like number of shares of
Common Stock not bearing the relevant legend(s) set forth or referred to in
Section 2.6.1.
ARTICLE III
REGISTRATION RIGHTS
3.1 PIGGYBACK AND DEMAND REGISTRATIONS.
3.1.1 PIGGYBACK REGISTRATIONS. If (x) at any time after the
occurrence of an IPO or (y) in an IPO if FPC and/or its Affiliates are permitted
to register any of their Registrable Securities, the Company proposes to
register for sale by the Company under the Securities Act any of its equity
securities (other than a registration on Form S-4 or Form S-8, or any successor
or similar forms), or any shares pursuant to a Demand Registration under Section
3.1.2, in a manner that would permit registration of Registrable Securities for
sale to
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the public under the Securities Act and in an underwritten offering, the
Company will each such time promptly give written notice to all Shareholders who
beneficially own any Registrable Securities of its intention to do so, of the
registration form of the SEC that has been selected by the Company and of such
holders' rights under this Section 3.1 (the "PIGGYBACK NOTICE"). The Company
will use its reasonable best efforts to include, and to cause the underwriter or
underwriters to include, in the proposed offering, on the same terms and
conditions as the securities of the Company included in such offering, all
Registrable Securities that the Company has been requested in writing, within
fifteen (15) calendar days after the Piggyback Notice is given, to register by
the Shareholders thereof (each such registration pursuant to this Section 3.1.1,
a "PIGGYBACK REGISTRATION"); provided, however, that (i) if, at any time after
giving a Piggyback Notice and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such equity securities (or, in the case
of a Demand Registration where the Initiating Holder (as defined below), so
determines), the Company may, at its election (or, in the case of a Demand
Registration, where the Initiating Holder so determines, the Company shall),
give written notice of such determination to all Shareholders who beneficially
own any Registrable Securities and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration, and (ii) in case of a determination by the Company to
delay registration of its equity securities (or, in the case of a Demand
Registration, if the Initiating Holder so determines), the Company shall be
permitted to (or, in the case of a Demand Registration where the Initiating
Holder, so determines, the Company shall) delay the registration of such
Registrable Securities for the same period as the delay in registering such
other equity securities (provided that clauses (i) and (ii) shall not relieve
the Company of its obligations under Section 3.1.2). In the case of any
registration of Registrable Securities in an underwritten offering pursuant to
this Section 3.1.1, all Shareholders proposing to distribute their securities
pursuant to this Section 3.1.1 shall, at the request of the Company (or, in the
case of a Demand Registration, at the request of the Initiating Holder), enter
into an agreement in customary form with the underwriter or underwriters.
Notwithstanding the foregoing, following an IPO, the Company shall not be
obligated to effect registration of Registrable Securities for which Piggyback
Registration is requested by an Other Shareholder if, at the time of such
request, all such Registrable Securities are eligible for sale to the public by
the requesting Other Shareholder without registration under Rule 144 under the
Securities Act, with such sale not being limited by either the timing or volume
restrictions thereunder.
3.1.2 DEMAND REGISTRATIONS. The Company, following the
consummation of an IPO, upon the reasonable request of FPC or the Trust (each of
FPC or the Trust, in such case, being referred to as an "INITIATING HOLDER"),
shall use its reasonable best efforts to register under the Securities Act any
reasonable portion of Registrable Securities held by the Initiating Holder
(including, at the election of such Initiating Holder, in an underwritten
offering) and bear all expenses in connection with such offering in a manner
consistent with Section 3.1.4 below and shall enter into such other agreements
in furtherance thereof (each such registration pursuant to this Section 3.1.2, a
"DEMAND REGISTRATION"), and the Company shall provide customary indemnifications
in such instances (in a manner consistent with the indemnification provisions of
this Article III) to the Initiating Holder and any such underwriters. FPC shall
have the right to initiate up to five (5) Demand Registrations pursuant to this
Section 3.1.2. The Trust shall have the right to initiate one (1)
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Demand Registration pursuant to this Section 3.1.2; provided, that the Company
shall not be obligated to effect a Demand Registration on behalf of the Trust
within nine (9) months of the effectiveness of another registration under this
Section 3.1. A registration shall not count as a Demand Registration unless and
until the registration statement relating thereto has been declared effective by
the SEC and not withdrawn. If any Demand Registration requested by FPC is in the
form of an underwritten offering, FPC shall designate the underwriter or
underwriters to be utilized in connection such offering. If the Demand
Registration requested by the Trust is in the form of an underwritten offering,
the Company shall designate an underwriter or underwriters to be utilized in
connection such offering, which selection shall be reasonably acceptable to the
Trust. Notwithstanding the foregoing, the Company shall not be obligated to
effect a Demand Registration if, at the time of such request, all such
Registrable Securities are eligible for sale to the public by the Initiating
Holder without registration under Rule 144 under the Securities Act, with such
sale not being limited by either the timing or volume restrictions thereunder.
3.1.3 EXPENSES. The Company shall pay all Registration
Expenses in connection with each registration of Registrable Securities
requested pursuant to this Section 3.1; PROVIDED, HOWEVER, that each Shareholder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Shareholder's Registrable Securities
pursuant to a registration statement effected pursuant to this Section 3.1.
3.1.4 PRIORITY IN PIGGYBACK AND DEMAND REGISTRATIONS. If the
managing underwriter for a registration pursuant to this Section 3.1 shall
advise the Company in writing that, in its opinion, the number of securities
requested to be included in such registration exceeds the number (the "SECTION
3.1 SALE NUMBER") that can be sold in an orderly manner in such offering within
a price range acceptable to the Company (or, in the case of a Demand
Registration, to the Initiating Holder), the Company shall include in such
offering (i) first, all the securities the Company proposes to register for its
own sale, and (ii) second, to the extent that the securities the Company
proposes to register are less than the Section 3.1 Sale Number, all Registrable
Securities requested to be included by all Shareholders; provided, however, that
if the number of such Registrable Securities exceeds (x) the Section 3.1 Sale
Number less (y) the number of securities included pursuant to clause (i) hereof,
then the number of such Registrable Securities included in such registration
shall be allocated pro rata among all requesting Shareholders, on the basis of
the relative number of shares of such Registrable Securities each such
Shareholder then holds. If there is any reduction or exclusion of Registrable
Securities pursuant to this Section 3.1.4 in connection with a Demand
Registration, such registration shall not be deemed to be a Demand Registration
for purposes of determining the maximum number of Demand Registrations the
Company is obligated to effect pursuant to Section 3.1.2 hereof.
3.1.5 UNDERWRITING REQUIREMENTS. In connection with any
offering involving any underwriting of securities in a Piggyback Registration,
the Company shall not be required to include any Shareholder's Registrable
Securities in such underwriting unless such Shareholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters as to the
quantity, and terms and conditions of inclusion of, such securities as set forth
in Section 3.1.1 hereof, and such Shareholder agrees to sell such Shareholder's
Registrable Securities on the basis provided therein and completes and/or
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executes all questionnaires, indemnities, lock-ups, underwriting agreements and
other documents (including powers of attorney and custody arrangements) required
generally of all selling Shareholders, in each case in customary form and
substance, which are requested to be executed in connection therewith.
3.2 REGISTRATION PROCEDURES. If and whenever the Company is
required to use its reasonable best efforts to effect or cause the registration
of any Registrable Securities under the Securities Act as provided in this
Article III, the Company will, as soon as practicable:
(a) prepare and file with the SEC the requisite registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become and remain
effective;
(b) prepare and file with the SEC 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
such period as the Company shall deem appropriate (provided that such period
shall not be shorter than ninety (90) days following the effectiveness of such
registration statement or, if shorter, until the completion of the distribution
of the Registrable Securities) and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
covered by such registration statement during such period;
(c) furnish to each seller of such Registrable Securities and
each underwriter such number of copies of such registration statement and of
each amendment and supplement thereto (in each case including all exhibits), and
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and summary prospectus), in conformity
with the requirements of the Securities Act, and such other documents as such
seller may reasonably request;
(d) promptly notify each Shareholder that holds Registrable
Securities covered by such registration statement, (i) when such registration
statement or any post-effective amendment or supplement thereto becomes
effective, (ii) of the issuance by the SEC or any state securities authority of
any stop order, injunction or other order or requirement suspending the
effectiveness of such registration statement (and take all reasonable action to
prevent the entry of such stop order or to remove it if entered, or the
initiation of any proceedings for that purpose), or (iii) of the happening of
any event as a result of which the registration statement, as then in effect,
the prospectus related thereto or any document included therein by reference
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made and
promptly file such amendments and supplements which may be required on account
of such event and use its reasonable best efforts to cause each such amendment
and supplement to become effective;
(e) promptly furnish counsel for each underwriter, if any, and
for the selling Shareholders of Registrable Securities, copies of any written
request by the SEC or any state securities authority for amendments or
supplements to a registration statement and prospectus or for additional
information;
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(f) use reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a registration statement at the
earliest possible time;
(g) use reasonable best efforts to cause all such Registrable
Securities covered by such registration statement to be listed on the principal
securities exchange, or authorized for quotation on Nasdaq, on which similar
equity securities issued by the Company are then listed or authorized for
quotation, or eligible for listing or quotation, if the listing or authorization
for quotation of such securities is then permitted under the rules of such
exchange or the NASD;
(h) enter into an underwriting agreement with the underwriter
of such offering in the form customary for such underwriter for similar
offerings, including such representations and warranties by the Company,
provisions regarding the delivery of opinions of counsel for the Company and
accountants' letters, provisions regarding indemnification and contribution, and
such other terms and conditions as are at the time customarily contained in such
underwriter's underwriting agreements for similar offerings (the sellers of
Registrable Securities which are to be distributed by such underwriter(s) may,
at their option, require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriter(s) shall also be made to and for the benefit of such sellers
of Registrable Securities);
(i) make available for inspection by representatives of the
selling Shareholders who hold Registrable Securities and any underwriters
participating in any disposition pursuant hereto and any counsel or accountant
retained by such Shareholders or underwriters, all relevant financial and other
records, pertinent corporate documents and properties of the Company and cause
the respective officers, directors and employees of the Company to supply all
information reasonably requested by any such representative, underwriter,
counsel or accountant in connection with a registration pursuant hereto;
PROVIDED, HOWEVER, that, with respect to records, documents or information which
the Company determines, in good faith, to be confidential and as to which the
Company notifies such representatives, underwriters, counsel or accountants in
writing of such confidentiality, such representatives, underwriters, counsel or
accountants shall not disclose such records, documents or information unless (i)
the release of such records, documents or information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, (ii) such
records, documents or information have previously been generally made available
to the public, or (iii) the disclosure of such records, documents or information
is necessary, in the written opinion of outside legal counsel, to avoid or
correct a material misstatement or omission in the registration statement and
then only after reasonable request has been made to the Company to make such
disclosure and the Company has denied such request. Each selling Shareholder of
such Registrable Securities agrees that information obtained by it as a result
of such inspections shall be deemed confidential and shall not be used by it as
the basis for any market transactions in the securities of the Company or its
Affiliates (or for such Shareholder's business purposes or for any reason other
than in connection with a registration hereunder) unless and until such
information is made generally available (other than by such Shareholder or where
such Shareholder knows that such information became publicly available as a
result of a breach of any confidentiality arrangement) to the public. Each
selling Shareholder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such records is sought, give notice to the
Company and allow the
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Company, at its expense, to undertake appropriate action to prevent disclosure
of the records deemed confidential;
(j) permit any beneficial owner of Registrable Securities who,
in the sole judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in the preparation of
such registration or comparable statement and to require the insertion therein
of material, furnished to the Company in writing, that in the judgment of such
holder, as aforesaid, should be included; and
(k) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into account
the needs of the Company's businesses and the requirements of the marketing
process) in the marketing of Registrable Securities in any underwritten
offering.
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. The Company shall not be
required to register or qualify any Registrable Securities covered by such
registration statement under any state securities, or "BLUE SKY," laws of such
jurisdictions other than as it deems necessary in connection with the chosen
method of distribution or to take any other actions or do any other things other
than those it deems necessary or advisable to consummate such distribution, and
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
otherwise be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any such
jurisdiction.
Each beneficial owner of Registrable Securities agrees that upon
receipt of any notice from the Company of the happening of any event of the kind
described in subclauses (ii) and (iii) of clause (d) of this Section 3.2, such
beneficial owner will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such beneficial owner's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (d) of this Section
3.2, and, if so directed by the Company, such beneficial owner will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in such beneficial owner's possession, of the prospectus covering
such Registrable Securities that was in effect prior to such amendment or
supplement.
3.3 INDEMNIFICATION.
(a) In the event of any registration of any Registrable
Securities pursuant to this Article III , the Company will, and hereby does,
indemnify and hold harmless, to the fullest extent permitted by law, the seller
of any Registrable Securities covered by such registration statement, its
directors, officers, fiduciaries, employees and stockholders, members or general
and limited partners (and the directors, officers, fiduciaries, employees and
stockholders, members or general and limited partners thereof), each other
Person who participates as an underwriter or a qualified independent
underwriter, if any, in the offering or sale of such securities, each director,
officer, fiduciary, employee and stockholder or
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general and limited partner of such underwriter or qualified independent
underwriter, and each other Person (including any such Person's directors,
officers, fiduciaries, employees and stockholders, members or general and
limited partners), if any, who controls such seller or any such underwriter or
qualified independent underwriter, within the meaning of the Securities Act,
against any and all Claims in respect thereof and expenses (including reasonable
fees and expenses of counsel and any amounts paid in any settlement effected
with the Company's consent, which consent shall not be unreasonably withheld or
delayed) to which each such indemnified party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims or
expenses arise out of or are based upon any of the following actual or alleged
statements, omissions or violations (each, a "VIOLATION"): (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement under which such securities were registered pursuant to
this Agreement under the Securities Act or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary prospectus or any
amendment or supplement thereto, together with the documents incorporated by
reference therein, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with any such registration,
and the Company will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred;
PROVIDED, that the Company shall not be liable to any such indemnified party in
any such case to the extent such Claim or expense arises out of or is based upon
any Violation which occurs in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf of
such indemnified party expressly stating that such information is for use in any
such registration statement preliminary, final or summary prospectus or
amendment or supplement or document incorporated by reference into any of the
foregoing.
(b) Each holder of Registrable Securities that are included in
the securities as to which any Demand Registration or Piggyback Registration is
being effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in connection with
any Demand Registration or Piggyback Registration, any underwriter and qualified
independent underwriter, if any) shall, severally and not jointly, indemnify and
hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section 3.3), to the extent permitted by law, the Company,
its directors, officers, fiduciaries, employees and stockholders (and the
directors, officers, fiduciaries, employees and stockholders or general and
limited partners thereof) and each Person (including any such Person's
directors, officers, fiduciaries, employees and stockholders or general and
limited partners), if any, controlling the Company within the meaning of the
Securities Act and all other prospective sellers and their directors, officers,
fiduciaries, employees and stockholders, members or general and limited partners
and respective controlling Persons (including any such Person's directors,
officers, fiduciaries, employees and stockholders, members or general and
limited partners) against any and all
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Claims and expenses (including reasonable fees and expenses of counsel and any
amounts paid in any settlement effected with the consent of the indemnifying
party, which consent shall not be unreasonably withheld or delayed) to which
each such indemnified party may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims or expenses arise out of or
are based upon any Violation which occurs in reliance upon and in conformity
with written information furnished to the Company or its representatives by or
on behalf of such holder or underwriter or qualified independent underwriter, if
any, expressly stating that such information is for use in connection with any
registration statement, preliminary, final or summary prospectus or amendment or
supplement or document incorporated by reference into any of the foregoing;
PROVIDED, HOWEVER, that the aggregate amount which any such holder, underwriter
or qualified independent underwriter shall be required to pay pursuant to this
Section 3.3(b) and Sections 3.3(c) and (e) shall be limited to (x) in the case
of any such holder, the amount of the gross proceeds received by such holder
upon the sale of the Registrable Securities pursuant to the registration
statement giving rise to such claim and (y) in the case of any such underwriter
or qualified independent underwriter, the amount of the total sales price of the
Registrable Securities sold through or by it pursuant to the registration
statement giving rise to such claim.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 3.3 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities (and, if
the Company requires as a condition to including any Registrable Securities in
any registration statement filed in connection with any Demand Registration,
Piggyback Registration or the IPO, any underwriter and qualified independent
underwriter, if any) with respect to any required registration or other
qualification of securities under any state securities and "BLUE SKY" laws.
(d) Any Person entitled to indemnification under this
Agreement shall notify promptly the indemnifying party in writing of the
commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 3.3, but the failure of any
indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under this Section 3.3, except to the extent the
indemnifying party is prejudiced thereby, and shall not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than under this Section 3.3. In case any action or proceeding is brought against
an indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, unless in the reasonable opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that (i) if the indemnifying party
fails to take reasonable steps necessary to defend diligently the action or
proceeding within twenty (20) days after receiving notice from such indemnified
party that the indemnified party believes it has failed
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to do so; or (ii) if such indemnified party who is a defendant in any action or
proceeding which is also brought against the indemnifying party reasonably shall
have concluded that there may be one or more legal defenses available to such
indemnified party which are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction, except to the extent any indemnified party or
parties reasonably shall have concluded that there may be legal defenses
available to such party or parties which are not available to the other
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
expenses therefor. No indemnifying party shall, without the written consent of
the indemnified party, which consent shall not be unreasonably withheld, effect
the settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (A) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (B) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable
or is insufficient to hold harmless an indemnified party under Section 3.3(a),
(b) or (c), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and the indemnified party on the other from the relevant offering of
securities. If, however, the allocation provided in the immediately preceding
sentence is not permitted by applicable law, or if the indemnified party failed
to give the notice required by Section 3.3(d) above and the indemnifying party
is prejudiced thereby, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of but also the relative
benefits received by the indemnifying party, on the one hand, and the
indemnified party, on the other hand, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the Violation relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
Violation. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 3.3(e) were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the preceding sentences of this
Section 3.3(e). The amount paid or payable in respect of any Claim shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 3.3(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this Section 3.3(e) to
contribute any amount in excess of (x) in the case
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of an indemnifying party that is a holder of Registrable Securities, the gross
proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages or liabilities
of the indemnified parties relate, or (y) in the case of an indemnifying party
that is an underwriter or a qualified independent underwriter, the amount of the
total sales price of the Registrable Securities sold through or by it in the
offering to which the losses, claims, damages or liabilities of the indemnified
parties relate, less, in any such case referred to in (x) and (y), the amount of
all indemnification and contribution payments made pursuant to Sections 3.3(b)
and (c) and this Section 3.3(e), as the case may be, in connection with such
offering.
(f) The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
(g) The indemnification and contribution required by this
Section 3.3 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3.4 HOLDBACK AGREEMENT.
(a) If requested in writing by the Company or the underwriter,
if any, of any offering affording Shareholders registration rights pursuant to
Section 3.1 (whether or not some or all of such Shareholder's Registrable
Securities are subject to a cutback pursuant to Section 3.1.4 of this
Agreement), each Shareholder agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144, of any Registrable
Securities or any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering)
within fourteen (14) days before or 180 days after the effective date of a
registration statement affording Shareholders such registration rights
(including where subject to a cutback pursuant to Section 3.1.4 of this
Agreement).
(b) If requested in writing by the underwriter of any offering
in connection with a Demand Registration, the Company agrees not to effect any
public sale or distribution (other than public sales or distributions solely by
and for the account of the Company of securities issued (x) pursuant to any
employee or director benefit or similar plan or any dividend reinvestment plan
or (y) in any acquisition by the Company) of any Registrable Securities or any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering), within fourteen
(14) days before or 180 days after the effective date of a registration
statement filed in connection with a Demand Registration, or for such shorter
period as the sole or lead managing underwriter shall request, in any such case,
unless consented to by such underwriter.
3.5 DEFERRAL. Notwithstanding anything to the contrary contained
herein, the Company shall not be obligated to prepare and file, or cause to
become effective, any
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registration statement pursuant to Section 3.1.2 hereof at any time when, in the
good faith judgment of the Board, the filing thereof at the time requested or
the effectiveness thereof after filing should be delayed to permit the Company
to include in the registration statement the Company's financial statements (and
any required audit opinion thereon) for the then immediately preceding fiscal
year or fiscal quarter, as the case may be. The filing of a registration
statement by the Company cannot be deferred pursuant to the provisions of the
immediately preceding sentence beyond the time that such financial statements
(or any required audit opinion thereon) would be required to be filed with the
SEC as part of the Company's Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, as the case may be, if the Company were then obligated to file such
reports. Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to file a registration statement, or cause a registration
statement previously filed pursuant to Section 3.1 to become effective, and may
suspend sales by the holders of Registrable Securities under any registration
that has previously become effective, at any time when, in the good faith
judgment of the Board, it reasonably believes that the effectiveness of such
registration statement or the offering of securities pursuant thereto would
materially adversely affect a pending or proposed acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction or
negotiations, discussions or pending proposals with respect thereto; provided
that deferrals pursuant to this sentence shall not exceed, in the aggregate, 180
days in any calendar year. The filing of a registration statement, or any
amendment or supplement thereto, by the Company cannot be deferred, and the
rights of holders of Registrable Securities to make sales pursuant to an
effective registration statement cannot be suspended, pursuant to the provisions
of the immediately preceding sentence for more than 15 days after the
abandonment or 30 days after the consummation of any of the foregoing proposals
or transactions, unless invoked under new circumstances.
ARTICLE IV
MANAGEMENT SHAREHOLDERS' PUTS AND CALLS
4.1 CALL RIGHTS. If, prior to the consummation of an IPO, a Management
Shareholder dies or the Management Shareholder's employment by the Company
terminates for any reason (including due to a Disability, as defined in such
Management Shareholder's Employment Agreement or any analogous provision of any
employment, compensation or benefit agreement or arrangement, if any, and if not
so defined, upon the good faith determination of the Board of such disability),
the Company shall have the right, at its election, subject to Section 25102(o)
of the General Corporation Law of the State of California in the event that such
Management Shareholder is none of a director, officer or consultant of the
Company for the purposes of said section, to purchase all (but not less than
all) of the Management Shareholder's shares of Common Stock (including any
shares held by its Permitted Transferees) within seven (7) months after such
termination, or fifteen (15) months after such termination in the case of death
of the Management Shareholder (with respect to any shares of Common Stock
acquired after such termination or death upon the exercise of Options held by
the Management Shareholder, such period to run from the date of exercise), at a
price equal to (A) in the case of any termination other than by the Company for
Cause (as defined in such Management Shareholder's Employment Agreement or any
analogous provision of any employment, compensation or benefit agreement or
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arrangement, if any, and if not so defined, upon the good faith determination of
the Board of such cause), the aggregate Fair Market Value of such Common Stock
determined as of, in all cases other than the death of the Management
Shareholder, the date such termination is effective and, in the case of the
Management Shareholder's death, as of the date of death, and (B) in the case of
termination by the Company for Cause, the lower of (1) the aggregate Fair Market
Value of such Common Stock as of the date the termination is effective and (2)
the product of (x) the number of shares of Common Stock and (y) the Cost Per
Share (subject to adjustment to reflect any adjustments to the Common Stock made
to reflect any merger, reorganization, consolidation, recapitalization, spinoff,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common Stock,
as the Company reasonably shall deem fair and appropriate). The Company shall
pay the purchase price in cash to the extent that the Company is permitted to
purchase such shares for cash (under both applicable law and its indebtedness).
The Company shall fund any amount not permitted to be paid in cash with a
Buy-Out Note. The Board may, in its discretion, assign the rights and
obligations of the Company under this Section 4.1 to any other Person, but no
such assignment shall relieve the Company of its obligations hereunder to the
extent not satisfied by such assignee.
4.2 PUT RIGHTS. Subject to any waiver of the rights provided in this
Section 4.2 contained in the Employment Agreement or any analogous provision of
any employment, compensation or benefit agreement or arrangement, if any, of any
Management Shareholder, if prior to the consummation of an IPO, a Management
Shareholder dies or the Management Shareholder's employment by the Company is
terminated by the Company without Cause or is terminated due to a Disability (as
each of such terms is defined in such Management Shareholder's Employment
Agreement or any analogous provision of any employment, compensation or benefit
agreement or arrangement, if any, and if not so defined, upon the good faith
determination of the Board of such disability), the Management Shareholder or
the Management Shareholder's legal representative or trustee, as the case may
be, shall have the right, within three (3) months after such termination is
effective (or one year after the date of death in the case of the Management
Shareholder's death), to require the Company to purchase all (but not less than
all) of the Management Shareholder's Common Stock (including any shares held by
its Permitted Transferees) at a price equal to (A) in the case of termination by
reason of death or Disability or by the Company without Cause, the Fair Market
Value thereof determined as of the date of death (in the case of termination due
to death) or the date such other termination is effective and (B) in the case of
termination by the Company for Cause, the lower of (1) the aggregate Fair Market
Value of such Common Stock and (2) the product of (x) the number of shares of
Common Stock and (y) the Cost Per Share (subject to adjustment to reflect any
adjustments to the Common Stock made to reflect any merger, reorganization,
consolidation, recapitalization, spinoff, stock dividend, stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock, as the Company reasonably shall
deem fair and appropriate). To the extent the funds for such purchase are
permitted under the indebtedness of the Company and its Affiliates and
applicable law, the Company shall pay the purchase price in cash. The Company
shall pay any amount not permitted to be paid in cash with a Buy-Out Note. The
Board may, in its discretion, assign the rights and obligations of the Company
under this Section 4.2 to any other Person, but no such assignment shall relieve
the Company of its obligations hereunder to the extent not satisfied by such
assignee.
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ARTICLE V
NONCOMPETITION AND UNFAIR COMPETITION
5.1 NONCOMPETITION. In consideration of the mutual covenants of
the parties contained herein, each Management Shareholder agrees with each other
Shareholder and the Company as follows, and acknowledges and agrees that a
breach of any of the following would constitute an act of unfair competition
against the Company and the other Shareholders:
(a) During the Covenant Period, no Management Shareholder
shall, except on behalf of the Company or an Affiliate thereof, engage directly
or indirectly, on his or her own behalf or on behalf of any other Person, in any
transaction with a view to the acquisition of a direct or indirect controlling
interest in, or merger or consolidation with or into, or the acquisition of
substantial assets of, any Person that has, or substantial assets of which have,
theretofore been the subject of investigation or study with a view to
acquisition by or merger or consolidation with or into the Company or any such
Affiliate.
(b) During the Covenant Period, no Management Shareholder
shall, except on behalf of the Company or an Affiliate thereof:
(i) Whether or not for compensation, directly or
indirectly engage in the Company's Line of Business, any part
thereof or any other business engaged in by the Company or its
Affiliates, in the Covenant Area, or participate in or
encourage or assist any other Person in such Person's conduct
of the Company's Line of Business, any part thereof or any
other business engaged in by the Company or its Affiliates, in
the Covenant Area, whether as a director, officer, employee,
consultant, adviser, independent contractor, sole proprietor,
partner or otherwise; or
(ii) Hold a direct or indirect legal or beneficial
interest in any Person (other than the Company or an Affiliate
thereof) which is engaged in the Company's Line of Business,
any part thereof or any other business engaged in by the
Company or its Affiliates, in the Covenant Area, whether such
interest is as an owner, investor, partner, creditor (other
than as a trade creditor in the ordinary course of business),
joint venturer or otherwise; PROVIDED, HOWEVER, that nothing
contained in the foregoing shall prevent any Management
Shareholder from owning not more than 5% of the outstanding
capital stock or other equity interests of a corporation
registered pursuant to Section 12(b) or 12(g) of the Exchange
Act; or
(iii) Solicit, divert or attempt to divert from the
Company or an Affiliate of the Company or any Person deriving
title to the goodwill of any of the foregoing (a "BUSINESS
TRANSFEREE") any business constituting, or any customer or
vendor of, any part of the Company's Line of Business or any
other business then conducted by the Company or such Affiliate
or such Business Transferee.
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5.2 NONSOLICITATION. In addition to the foregoing, as a means
reasonably designed to protect the confidential, proprietary and trade secret
information of the Company and its Affiliates, no Management Shareholder shall,
except on behalf of the Company or an Affiliate thereof:
(a) During the term of his employment or engagement by the
Company or any of its Affiliates and for a period of one (1) year thereafter,
directly or indirectly induce or attempt to induce or encourage any person
engaged or employed (whether part-time or full-time) by the Company or an
Affiliate thereof or any Business Transferee during such period, whether as an
officer, employee, consultant, adviser or independent contractor, to leave the
employ of the Company or such Affiliate or such Business Transferee, as the case
may be, or to cease providing the services to the Company or such Affiliate or
such Business Transferee, as the case may be, then provided by such person, or
in any other manner seek to engage or employ any such person (whether or not for
compensation) as an officer, employee, consultant, adviser or independent
contractor, such that such person would thereafter be unable to devote his or
her full business time, attention, energies, abilities and best efforts to the
business then conducted by the Company or such Affiliate or such Business
Transferee, as the case may be; or
(b) For a period of one year from and after termination of his
or her employment or engagement by the Company or an Affiliate thereof, engage
or employ (whether or not for compensation), as an officer, employee,
consultant, adviser or independent contractor, any person who, during the six
months prior to such date, served as an officer or salesperson of, or in an
executive, managerial or supervisory capacity with, the Company or any Affiliate
thereof.
5.3 REASONABLENESS OF RESTRICTIONS. Each Management Shareholder
acknowledges and agrees that the provisions of this Article V are reasonable in
scope and duration.
5.4 NONEXCLUSIVITY. The provisions of this Article V shall be in
addition to any other obligations of the Management Shareholders (whether as
officers or employees of the Company or an Affiliate thereof or otherwise), and
rights and remedies of any Shareholder or the Company or any Affiliate thereof
or Transferee, with respect to limitations on competition by the Management
Shareholders with the Company or any Affiliate or Transferee thereof.
5.5 SEPARABILITY. The agreements contained in this Article V shall
be construed as a series of separate covenants, one for each city and county in
any State or territory of the United States. If any of such separate covenants
shall be held by an arbitrator or court of competent jurisdiction to be invalid,
illegal or unenforceable (whether in whole or in part and whether generally or
in any particular city or county), such separate covenant shall be deemed
modified to the extent, but only to the extent, of such invalidity, illegality
or unenforceability and the remaining such separate covenants (both generally
and in each other city and county) shall not be affected thereby.
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ARTICLE VI
MISCELLANEOUS
6.1 EFFECTIVENESS; TERM.
(a) This Agreement shall become effective (the "EFFECTIVE
DATE") simultaneously with the closing of the Merger.
(b) In the event the Company enters into any agreement to
merge with or into any other Person (other than by way of the Merger) or adopts
any other plan of recapitalization, consolidation, reorganization or other
restructuring transaction as a result of which the Shareholders and their
respective permitted Transferees (including any Affiliates thereof) shall own
less than a majority of the outstanding voting power of the entity surviving
such transaction, this Agreement shall terminate.
(c) Notwithstanding anything in Section 6.1(b) to the
contrary, the provisions contained in Articles III, V and VI hereof shall
continue to remain in full force and effect until the earlier to occur of the
twentieth (20th) anniversary of the date hereof and the date on which there are
no longer any Registrable Securities outstanding; PROVIDED, HOWEVER, that the
provisions of Section 3.3 hereof shall survive termination pursuant to Section
6.1(b) hereof or this Section 6.1(c).
6.2 NO VOTING OR CONFLICTING AGREEMENTS. No Other Shareholder
shall grant any proxy or enter into or agree to be bound by any voting trust
with respect to the Common Stock nor, at any time, shall any Other Shareholder
enter into any shareholder agreements or arrangements of any kind with any
Person with respect to the Common Stock inconsistent with the provisions of this
Agreement (whether or not such agreements and arrangements are with other
Shareholders or holders of Common Stock that are not parties to this Agreement).
The foregoing prohibition includes, but is not limited to, agreements or
arrangements with respect to the acquisition, disposition or voting of shares of
Common Stock inconsistent with the provisions of this Agreement. No Other
Shareholder shall act, at any time, for any reason, as a member of a group or in
concert with any other Persons in connection with the acquisition, disposition
or voting of shares of Common Stock in any manner which is inconsistent with the
provisions of this Agreement.
6.3 COMPOSITION OF THE BOARD OF DIRECTORS. (a) Immediately
following the Effective Date, the Board shall consist of nine (9) members, all
of whom shall be designated by FPC. The parties recognize that following the
Effective Date, as owner of more than a majority of the Common Stock, FPC has
the power to alter the composition of the Board in accordance with the Company's
By-Laws. In addition, for as long as the Fund owns any of the Common Stock of
the Company, FPC, on behalf of the Fund, shall be entitled to designate such
percentages of the members of the Board as shall, as nearly as possible, equal
its percentage ownership of the voting stock of the Company, but in any case, at
least one member of the Board shall be designated by FPC on behalf of the Fund.
Each of the Other Shareholders entitled to vote in the election of directors to
the Board agrees that it shall vote its Common Stock or execute consents, as the
case may be, and take all other necessary
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action (including causing the Company to call a special meeting of Shareholders)
in order to ensure that the composition of the Board is as set forth in this
Section 6.3.
6.4 APPROVAL OF STOCK INCENTIVE PLAN BY SHAREHOLDERS. The
Shareholders by their execution of this Agreement, hereby approve the Stock
Incentive Plan, a copy of which is attached hereto as EXHIBIT A.
6.5 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
there would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligations of any other party
under this Agreement in accordance with the terms and conditions of this
Agreement. Any remedy under this Section 6.5 is subject to certain equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
6.6 NOTICES. All notices, statements, instructions or other
documents required to be given hereunder shall be in writing and shall be given
either personally or by mailing the same in a sealed envelope, by overnight
courier or by first-class mail, postage prepaid and either certified or
registered, in either case, return receipt requested, or by telecopy, addressed
to the Company at its principal offices and to the other parties at their
addresses reflected on the signature pages hereto. Each party hereto, by written
notice given to the other parties hereto in accordance with this Section 6.6,
may change the address to which notices, statements, instructions or other
documents are to be sent to such party. All notices, statements, instructions
and other documents hereunder that are mailed or telecopied shall be deemed to
have been given on the date of mailing or, in the case of telecopying, upon
confirmation of receipt.
6.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties, and their respective successors
and assigns. If any Shareholder or any Affiliate thereof or any Transferee of
any Shareholder shall acquire any shares of Common Stock in any manner, whether
by operation of law or otherwise, such shares shall be held subject to all of
the terms of this Agreement, and by taking and holding such shares such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement.
6.8 RECAPITALIZATIONS AND EXCHANGES AFFECTING COMMON STOCK. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to Common Stock, to any and all shares of capital stock or equity
securities of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution of, the Common Stock, or which
may be issued by reason of any stock dividend, stock split, reverse stock split,
combination, recapitalization, reclassification or otherwise. Upon the
occurrence of any of such events, numbers of shares and amounts hereunder and
any other appropriate terms shall be appropriately adjusted, as determined in
good faith by the Board.
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6.9 GOVERNING LAW. This Agreement shall be governed and construed
and enforced in accordance with the laws of the State of California, without
regard to the principles of conflicts of law thereof.
6.10 DESCRIPTIVE HEADINGS, ETC. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, references to "hereof," "herein," "hereby," "hereunder" and
similar terms shall refer to this entire Agreement.
6.11 AMENDMENT. Subject to the initial paragraph of this Agreement,
this Agreement may not be amended or supplemented except by an instrument in
writing signed by the Company and by Shareholders holding a majority of the then
outstanding shares of Common Stock held by all Shareholders; provided that any
amendment, supplement or modification of this Agreement which adversely affects
the rights and obligations of any Shareholder or group of Shareholders (the
"AFFECTED HOLDERS") differently than those of the other Shareholders shall also
require the approval of Affected Holders holding a majority of the outstanding
shares of Common Stock held by all such Affected Holders. Notwithstanding the
foregoing proviso, FPC and the Company may amend Article III of this Agreement
(other than in a manner that would materially reduce the Other Shareholders'
rights or materially increase the Other Shareholders' obligations with respect
to Piggyback Registrations or, in the case of the Trust, its Demand
Registrations) without the agreement or consent of any Other Shareholder.
6.12 SEVERABILITY. If any term or provision of this Agreement shall
to any extent be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law. Upon the
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties shall negotiate in good faith to modify this
Agreement so as to effect their original intent as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
6.13 FURTHER ASSURANCES. The parties hereto shall from time to time
execute and deliver all such further documents and do all acts and things as the
other parties may reasonably require to effectively carry out or better evidence
or perfect the full intent and meaning of this Agreement, including, to the
extent necessary or appropriate, using all reasonable efforts to cause the
amendment of the Articles or the By-Laws of the Company in order to provide for
the enforcement of this Agreement in accordance with its terms. In furtherance
and not in limitation of the foregoing, in the event of any amendment,
modification or termination of this Agreement in accordance with its terms, the
Shareholders shall cause the Board to meet within thirty (30) days following
such amendment, modification or termination or as soon thereafter as is
practicable for the purpose of amending the Articles and By-Laws, as may be
required as a result of such amendment, modification or termination, and, to the
extent required by law, proposing such amendments to the Shareholders of the
Company entitled to vote thereon, and such action shall be the first action to
be taken at such meeting.
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6.14 COMPLETE AGREEMENT; COUNTERPARTS. This Agreement constitutes
the entire agreement and supersedes all other agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
6.15 APPROVAL OF EMPLOYMENT AGREEMENT AND RESTATED ARTICLES OF
INCORPORATION BY SHAREHOLDERS. The Shareholders by their execution of this
Agreement approve and adopt (i) the employment agreement to be entered into by
and between the Company and Malcolm J. Caraballo and (ii) the Restated Articles
of Incorporation of the Company, a copy of which is attached hereto as EXHIBIT
B.
6.16 CERTAIN TRANSACTIONS. The parties hereto agree that Fox Paine
& Company, LLC ("FOX PAINE"), shall have the exclusive right to perform all
consulting, financing and investment banking and similar services for the
Company and its subsidiaries, for customary compensation and on other terms that
are customary for similar engagements with unaffiliated third parties, and
neither the Company nor its subsidiaries shall engage any other Person to
perform such services during the term of this Agreement except to the extent
that Fox Paine shall consent thereto or shall decline, at its sole election, to
perform such services.
6.17 NO THIRD PARTY BENEFICIARIES. The provisions of this Agreement
shall be only for the benefit of the parties to this Agreement, and no other
Person (other than any indemnified party with respect to Section 3.3) shall have
any third party beneficiary or other right hereunder.
[remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first written above.
WATKINS-JOHNSON COMPANY
3333 Hillview Avenue
Palo Alto, California 94304-1223
Facsimile: (650) 813-2502
By:_________________________________________
Malcolm J. Caraballo
Its: President and Chief Executive Officer
FOX PAINE CAPITAL FUND, L.P.
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Facsimile: (650) 525-1396
BY: Fox Paine Capital, LLC, its General Partner
By:__________________________________
W. Dexter Paine, III
FPC INVESTORS, L.P.
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Facsimile: (650) 525-1396
BY: Fox Paine Capital, LLC, its General Partner
By:__________________________________
W. Dexter Paine, III
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<PAGE>
WJ COINVESTMENT FUND I, LLC
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Facsimile: (650) 525-1396
By: Fox Paine Capital, LLC
Its: Manager
By:____________________________________
W. Dexter Paine, III
WJ COINVESTMENT FUND II, LLC
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Facsimile: (650) 525-1396
By: Fox Paine Capital, LLC
Its: Manager
By:____________________________________
W. Dexter Paine, III
WJ COINVESTMENT FUND III, LLC
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Facsimile: (650) 525-1396
By: Fox Paine Capital, LLC
Its: Manager
By:____________________________________
W. Dexter Paine, III
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<PAGE>
WJ COINVESTMENT FUND IV, LLC
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Facsimile: (650) 525-1396
By: Fox Paine Capital, LLC
Its: Manager
By:____________________________________
W. Dexter Paine, III
THE WATKINS TRUST DATED SEPTEMBER 19, 1988
c/o Dean A. Watkins
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Facsimile: (650) 813-2502
By:________________________________________
Dean A. Watkins
Its: Trustee
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<PAGE>
MALCOLM J. CARABALLO
1400 Quema Court
Fremont, California 94539
Facsimile:
_________________________________________
THOMAS R. KRITZER
21785 Hyannisport Drive
Cupertino, California 95014
Facsimile:
_________________________________________
RALPH E. HOOVER
1190 Vinter Way
Pleasanton, California 94566
Facsimile:
_________________________________________
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<PAGE>
EXHIBIT A
[Attach Stock Incentive Plan]
-35-
<PAGE>
EXHIBIT B
[Attach copy of restated articles]
-36-
