This
SHAREHOLDERS AGREEMENT, with an effective date as
of January 1, 2005, is entered into by and between Waldrop
Enterprises, Inc., a California corporation ("Purchaser" or
"Waldrop"), and The Phillip Lee Bonnell 2004 Trust dated July 31,
2004 ("Seller" or the "Bonnell Trust").
WHEREAS , this Agreement is entered into with reference
to Netword Publishing, Inc., a California Corporation
("Corporation" or "Company"), of which Seller is a shareholder and
of which Purchaser is now also a shareholder after acquiring 3,990
shares in the Corporation from Seller as of the date hereof. Seller
now currently owns 6,010 shares.
WHEREAS, in further consideration of and concurrently
with the execution of this Agreement and the "Note" (as defined in
section 11 hereof), (A) Seller and Purchaser have entered into the
following additional agreements: (i) an Exclusive License Agreement
dated as of January 1, 2005 (with Corporation as an additional
party) (the "License Agreement") and (ii) a Stock Purchase
Agreement dated as of January 1, 2005 (the "Acquisition Agreement")
(together with a Secured Promissory Note dated as of January 1,
2005 in the amount of $451,106.91 executed by Purchaser in favor of
Seller [the "Acquisition Agreement Note"]); and (B) Corporation has
entered into an Employment Agreement with Phil Bonnell dated as of
January 1, 2005 (the "Employment Agreement"). The License
Agreement, Acquisition Agreement, Acquisition Agreement Note and
Employment Agreement are collectively referred to herein as the
"Other Transaction Documents" and this Agreement, the Note and the
Other Transaction Documents are collectively referred to herein as
the "Transaction Documents."
NOW,
THEREFORE , in
consideration of the premises and of the mutual representations,
warranties, covenants and agreements set forth herein, the parties
hereto, intending to be legally bound, hereby agree as
follows:
1. Covenants of the Parties
: (a) No additional stock shall be issued by the Corporation
without the unanimous written consent of the Corporation's
shareholders; (b) neither of the parties hereto shall sell,
transfer, pledge, assign or otherwise in any manner dispose of,
transfer or encumber any of its shares of the Corporation, unless
and until it shall have first offered to sell such shares to the
other party hereto as hereinafter agreed, except as may otherwise
be provided herein; anything to the contrary herein
notwithstanding, Seller may, in its sole and absolute discretion
without any requirement to first offer them to the other party
hereto, transfer up to 500 shares of the Corporation to Linda
Berestynski or her designee, who may or may not be required by
Seller in its sole and absolute discretion to become a party to
this Agreement; and (c) as long as a person designated by the
Bonnell Trust is a member of the Corporation's Board of Directors:
(i) he or she as such a member shall have the sole and absolute
discretion, including without limitation pursuant to the Employment
Agreement, to take or not take any action with respect to any
Corporation employee, including without limitation, to (A) set the
amount of any compensation (including bonus), benefits or
reimbursements payable to any Corporation employee, or any
shareholder dividend or distribution, up to the total amount of
Company cash and cash equivalents on hand at that time, less
$2,000.00, and (B) commence or terminate the employment of anyone
by the Corporation, except that any termination involving the
payment of severance compensation shall require the unanimous
written consent of the Corporation's Board of Directors; and (ii)
unless otherwise unanimously consented to in writing by the
Corporation's Board of Directors, no compensation or expenses shall
be paid to William H. Waldrop or anyone else other than pursuant to
the Employment Agreement, and no one other than the Bonnell Trust
or its designee shall be authorized to write, cash or deposit
Corporation checks or otherwise expend Corporation
funds.
2.
Additional Covenants : Anything to the
contrary herein or in the Employment Agreement notwithstanding: (a)
(i) provided that Waldrop has fully and timely complied with its
obligations under this Agreement, the Note, the License Agreement,
the Acquisition Agreement and the Acquisition Agreement Note, the
Corporation shall not be in breach of the Employment Agreement for
failure to timely pay to Phil Bonnell all the compensation
(including bonus), benefits and reimbursements to which he is
entitled thereunder due to a lack of funds; and (ii) upon Phil
Bonnell's death, Sandra Minadeo (or such other person as Phil
Bonnell may have, subsequent to the date hereof, designated in a
writing acknowledged by a notary public) shall automatically (A)
succeed to all of Mr. Bonnell's rights and responsibilities under
the Employment Agreement, (B) become a party to the Employment
Agreement in Mr. Bonnell's place, and (C) be employed by the
Corporation as Chairman of the Board and CEO; and (b) provided that
Waldrop has fully and timely complied with its obligations under
the Transaction Documents: (i) the written approval of Waldrop and
the Bonnell Trust (which approval shall not be unreasonably
withheld or delayed) shall be required for the Corporation to pay
any single expense incurred by the Corporation on or after January
1, 2005 in excess of $1,000.00 or multiple expenses incurred by the
Corporation on or after January 1, 2005 in excess of $10,000.00
within any calendar year (not including (A) amounts paid or payable
in connection with Phil Bonnell and the Employment Agreement or the
Corporation's assistant marketing director, (B) reasonable expenses
[including legal or accounting services] to interpret, comply with,
enforce or defend any contractual or other rights/obligations of
the Corporation or to provide shares of the Corporation's stock to
Linda Berestynski or her designee or to otherwise comply with
applicable law, nor (C) any liability incurred by the Corporation
prior to January 1, 2005); (ii) any expense of the Corporation
subject to but not previously approved in accordance with section
2(b)(i) (an "Applicable Post-2004 Expense") and any liability
incurred by the Corporation prior to January 1, 2005 (an
"Applicable Pre-2005 Liability"), shall if still unresolved and
owed by the Corporation to a third party not affiliated with the
parties hereto be subject to the offset provisions set forth in
sections 4(a)(v) and 8(a)(v) hereof; and (iii) any Applicable
Post-2004 Expense or Applicable Pre-2005 Liability, if still
unresolved and the Corporation is served with a complaint thereon
by a third party not affiliated with the parties hereto, shall
within a reasonable period of time thereafter (and following
Waldrop's written request therefor) require that the License
Agreement and that the Acquisition Agreement Note be amended to
permit offset rights to Waldrop which are substantially similar to
those provided in sections 4(a)(v) and 8(a)(v) hereof, which if so
amended shall require any applicable offsets to occur first in
connection with payments owing under the Acquisition Agreement
Note, second in connection with royalties or consulting
compensation payable in connection with the License Agreement, and
third pursuant to either sections 4(a)(v) or 8(a)(v) hereof, and
shall permit such offsets to include reasonable attorneys' fees
paid by the Corporation to resolve and/or defend such
complaint.
3. Sale
of Shares by a Party : (a) Except as provided in section 1(b)
hereinabove, each party hereto shall have the right to exercise a
first right of refusal if the other party desires to transfer to
another person or entity (or is required by operation of law or
other involuntary means to transfer) any or all of its shares of
the Corporation. In each such instance, the selling party shall
deliver a written notice to the non-selling party stating -
(i) such party's bona fide intention to transfer such shares,
(ii) the name and the address of the proposed transferee,
(iii) the shares to be transferred, and (iv) the purchase
price and terms of payment for which such party proposes to
transfer such shares. Within 90 days after receipt of such notice,
the non-selling party shall have the first right to purchase or
obtain such shares, upon the price and terms of payment designated
in the notice. If the notice provides for the payment of non-cash
consideration, the non-selling party at its option may pay the
consideration in cash equal to the non-selling party's reasonable
good faith estimate of the present fair market value of the
non-cash consideration offered. (b) Nothing in this section shall
limit Waldrop's rights under section 4 or 8 of this
Agreement.
4.
Option to Purchase :
(a) In further consideration of and in connection with the License
Agreement and the Acquisition Agreement, and provided the License
Agreement has not been terminated prior to the date of purchase as
set forth hereinbelow (or provided the Bonnell Trust waives the
requirement that the License Agreement not have been so
terminated), Waldrop shall have the option at any time after
December 31, 2007 and before March 1, 2011, pursuant to six (6)
months' advance written notice given to and received by the Bonnell
Trust, to purchase all of the shares held by the Bonnell Trust in
the Corporation, for a purchase price of $4,000,000.00 and other
reasonable terms and conditions. In connection therewith, the
parties shall negotiate in good faith the reasonable terms and
conditions of such sale; provided, however, that if a mutual
agreement is not reached within the six-month notice period, then
the parties shall finalize and close such sale no later than two
(2) months thereafter, on the following additional terms and
conditions: On or before the closing, the Bonnell Trust (i) shall
be paid at least $1,000,000.00 in cash, (ii) shall be given a
secured promissory note, in substantially the form attached hereto
as Exhibit "A" and incorporated herein by reference, in the amount
of $3,000,000 plus interest at the Bank of America prime rate plus
5%, payable in equal monthly installments of principal amortized
over the term of such promissory note, plus all applicable
interest, commencing on the closing date and payable in full within
three (3) years from the closing date (the "Section 4 Promissory
Note"), (iii) shall receive a stock pledge agreement, in
substantially the form attached hereto as Exhibit "B" and
incorporated herein by this reference, securing Waldrop's
obligations under the Section 4 Promissory Note, (iv) shall receive
a pledged stock certificate issued to Waldrop in the amount of all
the shares held by Waldrop in the Corporation together with the
stock powers required under the aforesaid stock pledge agreement,
(v) shall agree to permit Waldrop to pay directly to the creditor
and, upon presentation to the Bonnell Trust of reasonable proof of
such payment, offset against the monthly installments owing under
the Section 4 Promissory Note, any Applicable Post-2004 Expense or
Applicable Pre-2005 Liability which remains unresolved and owed by
the Corporation to a third party not affiliated with the parties
hereto immediately prior to Waldrop's payment, to the extent such
payment by Waldrop reduces the amount of such Applicable Post-2004
Expense or Applicable Pre-2005 Liability, and (vi) shall be given
such other agreements and documents as the Bonnell Trust may
reasonably request.
(b) If Waldrop
does not exercise its option and purchase all of the Bonnell
Trust's shares in the Corporation for $4,000,000.00 before March 1,
2011, then (1) Waldrop shall be obligated and shall pay to the
Bonnell Trust the sum of $200,000.00 in cash within sixty (60) days
of the termination of the License Agreement and (2) the Bonnell
Trust or its designee shall be entitled to purchase the 3,990
shares of the Corporation that Waldrop previously purchased from
the Bonnell Trust for the same purchase price and five-year payment
terms and on virtually the same other terms and conditions
described in the Acquisition Agreement, and Waldrop shall fully and
promptly co
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