TABLE OF CONTENTS

 

ARTICLE I. DEFINITIONS		1
1.1.	Certain Matters of Construction	1
1.2.	Definitions	2
ARTICLE II. COVENANTS AND CONDITIONS		10
2.1.	Restrictions on Transfers	11
2.2.	Call by the Company and the Stockholders.	14
2.3.	Take Along.	17
2.4.	Right of First Offer; Compelled Sale	18
2.5.	Corporate Governance.	20
2.6.	Supermajority Provisions.	23
2.7.	Rights of Participation.	24
2.8.	Confidentiality; Non-Solicitation.	25
2.9.	Financial and Business Information	26
ARTICLE III. REGISTRATION RIGHTS		26
3.1.	General	26
3.2.	Demand Registration Initiated by the Berkshire Stockholders.	27
3.3.	Demand Registration Initiated by the JH Stockholders.	27
3.4.	Piggyback Registration.	28
3.5.	Obligations of the Company	29
3.6.	Furnish Information	31
3.7.	Expenses of Registration	31
3.8.	Underwriting Requirements	31
3.9.	Indemnification	32
3.10.	Registration on Form S-3	35
3.11.	Reports Under Securities Exchange Act of 1934	35
3.12.	No Inconsistent Agreements	35
3.13.	Stock Split	35
3.14.	Timing and Other Limitations.	36
3.15.	Lock-up	36
ARTICLE IV. MISCELLANEOUS		36
4.1.	Appointment of Proxies.	36
4.2.	Regulatory Cooperation	37
4.3.	Remedies	37
4.4.	Entire Agreement; Amendment; Waiver	38

 

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4.5.	Severability	38
4.6.	Notices	39
4.7.	Binding Effects Assignment	40
4.8.	Governing Law	40
4.9.	Termination	40
4.10.	Recapitalizations, Exchanges, Etc	40
4.11.	Action Necessary to Effectuate the Agreement	40
4.12.	Purchase for Investment; Legend on Certificate	40
4.13.	Effectiveness of Transfers	41
4.14.	Other Stockholders	41
4.15.	No Waiver	42
4.16.	Counterparts	42
4.17.	Headings	42
4.18.	Third Party Beneficiaries	42
4.19.	Consent to Jurisdiction	42
4.20.	WAIVER OF JURY TRIAL	42

 

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STOCKHOLDERS AGREEMENT

This Stockholders Agreement (this “Agreement”) is entered into as of the 10th day of June, 2004 by and among (i) STB Beauty, Inc., a Delaware corporation (the “Company”) and (ii) the Stockholders (as defined herein) party hereto.

WHEREAS, upon consummation of the transactions contemplated by that certain Agreement and Plan of Merger dated as of May 3, 2004 (the “Merger Agreement”) by and among the Company, MD Beauty, Inc. (“MD Beauty”), STB Acquisition, Inc., JH Partners, LLC and certain stockholders and option holders of MD Beauty, the Berkshire Stockholders, the JH Stockholders, the Mezzanine Stockholders and the Other Stockholders will own the number of shares of Common Stock of the Company, each as set forth opposite their respective names on Exhibit A hereto;

WHEREAS, on the date hereof, the Management Stockholders will receive, pursuant to the 2004 Equity Incentive Plan, options to purchase shares of Common Stock of the Company, as set forth opposite their respective names on Exhibit A hereto.

WHEREAS, upon consummation of the transactions contemplated by the Merger Agreement, the Management Stockholders own the number of Rollover Options, each as set forth opposite their respective names on Exhibit A hereto; and

WHEREAS, each of the Stockholders desires to enter into this Agreement for the purpose of regulating certain relationships of the Stockholders with regard to the Company and certain restrictions on the Shares owned by the Stockholders.

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

ARTICLE I.
DEFINITIONS

1.1.          Certain Matters of Construction .  In addition to the definitions referred to or set forth below in this Section 1:

(a)           The words “hereof”, “herein”, “hereunder” and words of similar import shall refer to this Agreement as a whole and not to any particular Section or provision of this Agreement, and reference to a particular Section of this Agreement shall include all subsections thereof;

(b)           Definitions shall be equally applicable to both nouns and verbs and the singular and plural forms of the terms defined; and

(c)           The masculine, feminine and neuter genders shall each include the other.

 

1.2.          Definitions .  For the purposes of this Agreement, the following terms shall have the following meanings:

“1933 Act” shall mean the Securities Act of 1933, as amended.

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended.

“2004 Equity Incentive Plan” shall mean the Company’s 2004 Equity Incentive Plan.

“Affiliate” shall mean, with respect to any specified Person, any other Person which, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person (for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise and as used with respect to the Company or any Subsidiary of the Company, shall include any holder of at least 5% of the capital stock, or any officer or director, of the Company); provided that, with respect to each JH Stockholder, for the purposes of Section 2.8, “Affiliate” shall also include JH Partners, LLC, JH Capital Partners, LP, Jesse.Hansen CoVe, Siberia Investment Company and any successor fund controlled by JH Partners, LLC or any of its Affiliates.

“Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

“Associate” (i) when used to indicate a relationship with any Person shall mean, (a) any corporation or organization of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as a trustee or in a similar fiduciary capacity, and (c) any relative of such Person who has the same home as such Person, is a parent, aunt or uncle, sibling, spouse, in-law, child, niece or nephew or grandchild of such Person, or the spouse of any of them, or (ii) when used to indicate a relationship with the Company, shall also mean a director or officer of the Company or any Subsidiary.  Neither the Company nor any of its Subsidiaries shall be deemed an Associate of any Stockholder.

“Berkshire Representatives” shall have the meaning as set forth in Section 2.5(a).

“Berkshire Stockholders” shall mean (i) those Persons listed as the Berkshire Stockholders on the signature pages hereof, and (ii) their Permitted Transferees (other than the Company and any transferee acquiring under clause (viii) of the definition of Permitted Transferee).

“BNP Paribas” means Paribas North America, Inc., a Delaware corporation or other Permitted Transferee that is an Affiliate of Paribas North America, Inc., for so long as such entity is a Stockholder.

“Board” or “Board of Directors” shall mean the Board of Directors of the Company as the same shall be constituted from time to time.

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“Call Event” shall have the meaning as set forth in Section 2.2(a).

“Call Group” shall have the meaning as set forth in Section 2.2(a).

“Call Notice” shall have the meaning as set forth in Section 2.2(a).

“Call Option” shall have the meaning as set forth in Section 2.2(a).

“Call Price” shall have the meaning as set forth in Section 2.2(b).

“Call Securities” shall mean all of the Shares, Rollover Options, vested Time Options and vested and earned Performance Options which are owned by the members of the Call Group on the date of a Call Event.

“Cause” shall have the meaning as set forth below, except with respect to any Management Stockholder who is employed by the Company or one of its Subsidiaries pursuant to an effective written employment agreement, if any, between the Company and/or one of its Subsidiaries and such Management Stockholder in which there is a definition of “Cause”, in which event the definition of “Cause” as set forth in such employment agreement shall be deemed to be the definition of “Cause” herein solely for such Management Stockholder and only for so long as such employment agreement remains effective.

In all other events, the term “Cause” shall mean that the Board of Directors of the Company has determined, in its reasonable judgment, that any one or more of the following has occurred:

(i)           the Management Stockholder shall have been convicted of, or shall have pleaded guilty or nolo contendere to, a felony;

(ii)          the Management Stockholder shall have breached any non-competition agreement between the Management Stockholder and the Company or its Affiliates; or

(iii)         the Management Stockholder shall have openly disregarded his or her responsibilities to the Company and/or its Affiliates and shall have refused to devote substantial time and energy to the business and affairs of the Company and/or its Affiliates (other than due to Disability or temporary disability which, in the reasonable judgment of the Board of Directors, causes the Management Stockholder to be incapable of devoting such time and energy) within 30 days after written notification by the Board of Directors that, in their good faith judgment, the Management Stockholder has consistently failed to do so.

“Common Stock” shall mean the Company’s common stock, $0.01 par value per share, that the Company may be authorized to issue from time to time, any other securities of the Company into which such Common Stock may hereafter be changed or for which such Common Stock may be exchanged after giving effect to the terms of such change or exchange (by way of reorganization, recapitalization, merger, consolidation or otherwise) and shall also include any

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common stock of the Company hereafter authorized and any capital stock of the Company of any other class hereafter authorized which is not preferred as to dividends or distribution of assets in liquidation over any other class of capital stock of the Company and which has ordinary voting power for the election of directors of the Company.

“Company” shall mean STB Beauty, Inc., a Delaware corporation, and its successors and assigns.

“Company Note” shall have the meaning as set forth in Section 2.2(c).

“Company Option Period” shall have the meaning as set forth in Section 2.1(a).

“Company Sale” shall mean any transaction whether by sale of stock, sale of assets, merger, recapitalization, reorganization or otherwise, pursuant to which one or more Third Parties shall own in excess of 50% of the common equity or assets of the Company on a fully diluted basis (assuming exercise of all Options), in each case in a single transaction or series of related transactions.

“Compelled Sale” shall mean a Company Sale in which one hundred percent (100%) of the equity or assets of the Company shall be transferred to an unaffiliated Third Party, whether by sale of stock, sale of assets, merger, recapitalization, reorganization or otherwise.

“Compelled Sale Notice” shall have the meaning as set forth in Section 2.4(b).

“Credit Agreement” shall mean the Credit Agreement dated as of June 10, 2004 by and among MD Beauty, Inc., the Company, the Lenders (as defined therein), and BNP Paribas, as administrative agent for the Lenders, together with all exhibits and schedules thereto.

“Default” shall have the meaning as set forth in Section 2.2(c).

“Disability” shall mean permanent disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, unless otherwise defined in a separate written employment agreement between the Company and/or one of its Subsidiaries and the person whose disability is in question in which event the definition of “Disability” as set forth in such employment agreement shall be deemed to be the definition of “Disability” herein solely for such person and only for so long as such employment agreement remains effective.

“Existing Incentive Plans” shall mean each of the MD Beauty, Inc. 2001 Stock Plan and the Bioceutix Inc. 2001 Stock Option/Stock Issuance Plan, which plans shall be assumed by the Company effective upon the consummation of the Merger.

“Fair Market Value” shall mean the fair value per share of the applicable Shares as of the applicable date on the basis of a sale of such Shares in an arms length private sale between a willing buyer and a willing seller, neither acting under compulsion.  In determining such Fair Market Value, no discount shall be taken for constituting a minority interest or for the illiquidity of such shares and no upward adjustment or discount shall be taken relating to the fact that the Shares in question are subject to the restrictions and entitled to the rights provided hereunder.

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Such Fair Market Value shall be determined in good faith by the Board of Directors of the Company

“Federal Bankruptcy Code” means Title 11 of the United States Code.

“First Offer” shall have the meaning as set forth in Section 2.4(a).

 “Fund I” shall mean Gleacher Mezzanine Fund I, L.P.

“Fund P” shall mean Gleacher Mezzanine Fund P, L.P.

“Holder” or “Holders” shall mean the holder or holders of Registrable Securities.

“Incentive Plans” shall mean the 2004 Equity Incentive Plan and the Existing Incentive Plans.

“Investment Price” shall mean an amount per Share equal to the price per Share paid for such Share at the time of initial purchase thereof (subject to appropriate adjustments for stock splits, recapitalizations and the like).

“Involuntary Transfer” shall have the meaning as set forth in Section 2.1(a).

“JH Representatives” shall have the meaning as set forth in Section 2.5(a).

“JH Stockholders” shall mean (i) those Persons listed as the JH Stockholders on the signature pages hereof and (ii) their Permitted Transferees (other than the Company and any transferee acquiring under clause (viii) of the definition of Permitted Transferee).

“Management Proxy” shall have the meaning as set forth in Section 4.1(a).

“Management Representative” shall have the meaning as set forth in Section 2.5(a).

“Management Stockholders” shall mean (i) those Persons listed as the Management Stockholders on the signature pages hereof and (ii) their Permitted Transferees (other than the Company).

“Merger Agreement” shall have the meaning as set forth in the recitals.

“Mezzanine Stockholders” shall mean each of (i) Fund I, Fund P and York Street for so long as such Person holds Shares and (ii) their Permitted Transferees (other than the Company) for so long as such Persons hold such Shares

“New Securities” shall have the meaning as set forth in Section 2.7(b).

“Non-Requesting Party” shall have the meaning as set forth in Section 2.4(a).

“Offer Notice” shall have the meaning as set forth in Section 2.4(a).

“Offer Price” shall have the meaning as set forth in Section 2.4(a).

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“Offer Terminate Date” shall have the meaning as set forth in Section 2.4(a)

“Options” shall mean the Time Options, Performance Options, and Rollover Options.

“Other Stockholders” shall mean (i) those Persons listed as the Other Stockholders on the signature pages hereof, (ii) their Permitted Transferees (other than the Company), and (iii) those Persons described in Section 4.14(iv) hereof.

“Outside Representatives” shall have the meaning as set forth in Section 2.5(a).

“Performance Options” shall mean, collectively, the options, granted to Management Stockholders under the 2004 Equity Incentive Plan, to purchase shares of the Company’s Common Stock, the number of earned shares of which is subject to the attainment of certain performance targets as determined by the requisite vote (as set forth in the 2004 Equity Incentive Plan) of the Board of Directors, on the terms set forth therein.

“Permitted Transfer” shall mean:

(i)           a Transfer of Shares by any Stockholder who is a natural person to (A) such Stockholder’s spouse, children (including legally adopted children and stepchildren) and grandchildren, (B) a trust for the benefit of the Stockholder and/or any of the persons described in clause (A), or (C) a limited partnership or limited liability company whose sole partners or members, as the case may be, are the Stockholder and/or any of the persons described in clause (A) or clause (B); provided, that the Stockholder transferring such Shares in any of clauses (A), (B) or (C) retains exclusive power to exercise all rights under this Agreement;

(ii)          a Transfer of Shares by any Stockholder to the Company;

(iii)         a Transfer of Shares by a Stockholder upon death or in capacity to such Stockholder’s estate, executors, administrators and personal representatives, and then to such Stockholder’s legal representatives, heirs or legatees (whether or not such recipients are a spouse, children, grandchildren, parents or siblings of such Stockholder), provided , that, in the case of a Management Stockholder whose Shares were subject to the provisions of Section 2.2 immediately prior to such Management Stockholder’s death, the Company has not exercised its Call Option with respect to such Shares under Section 2.2;

(iv)         a Transfer of Shares (a) by any Berkshire Stockholder to any Affiliate of Berkshire Partners LLC or any of the employees, partners, members or Affiliates of such Berkshire Stockholder or any such Affiliate or (b) between any Berkshire Stockholders;

(v)          a Transfer of Shares (a) by any JH Stockholder to any Affiliate of JH MDB Investors, L.P. or any of the employees, partners, members or

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Affiliates of such JH Stockholder or any such Affiliate or (b) between any JH Stockholders;

(vi)         a Transfer of Shares from any Other Stockholder which is a corporation,  partnership or limited liability company to any Affiliate of such Other Stockholder;

(vii)        a Transfer of Shares from any Mezzanine Stockholder to (a) any Affiliate of a Mezzanine Stockholder, which will include one or more newly created funds which is (A) under common or affiliated management with such Mezzanine Stockholder or (B) managed by a group of Persons which includes a material number of such Mezzanine Stockholder professionals and which, in each case, invests in equity securities and is a “qualified institutional buyer” or “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), so long as such transfer is made as part of a transaction or series of transactions pursuant to which such Stockholder transfers a material portion of its equity investments to any one or more such funds; (b) any member or partner of a Mezzanine Stockholder, in the case of a Mezzanine Stockholder organized as a limited liability company, limited partnership or general partnership; (c) any other Stockholder; (d) any other Mezzanine Stockholder or any of their respective Affiliates; or (e) in the case of any Mezzanine Stockholder who is also a holder of any indebtedness of the Company under the Senior Subordinated Loan Agreement or whose Affiliates are holders of any such indebtedness thereunder, (X) any transferee (other than a Participant as defined in the Senior Subordinated Loan Agreement) of any such indebtedness pursuant to and in connection with a transfer permitted under the Senior Subordinated Loan Agreement of (I) at least half of the indebtedness held by the Mezzanine Stockholder as of the date hereof or (II) a proportionate or greater (as compared to the percentage of such Mezzanine Stockholder’s Shares being transferred) amount of such indebtedness or (Y) as an equity participation in connection with a sale of a participating interest under Section 10.12.2 of the Senior Subordinated Loan Agreement in (I) at least half of the indebtedness held by the Mezzanine Stockholder as of the date hereof or (II) a proportionate or greater (as compared to the percentage of such Mezzanine Stockholder’s equity with respect to which such participation is being granted) amount of such indebtedness;

(viii)       a Transfer of Shares from any Stockholder if such Transfer is first approved by a Supermajority Vote or, after the occurrence of a Trigger Event, by Berkshire Stockholders holding a majority of the Shares held by all Berkshire Stockholders; and

(ix)  any transfer of Shares made in accordance with Section 2.3.

provided , however , that Options may only be transferred in accordance with the terms of the applicable Incentive Plan; and provided, further, that no Permitted Transfer shall be effective

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(or any successor provision) under the 1933 Act and such securities may be resold by the Holder thereof without registration under the 1933 Act.

“Requesting Party” shall have the meaning as set forth in Section 2.4(a).

“Rollover Options” shall mean, collectively, the vested options retained by certain Management Stockholders under the Existing Incentive Plan to purchase shares of Common Stock on the terms set forth therein and in the stock option agreements issued pursuant thereto, in each case as set forth on Exhibit A under the column headed “Rollover Options”.

“Rollover Shares” shall mean Shares issued after the date hereof upon the exercise of Rollover Options.

“Sale Request” shall have the meaning as set forth in Section 2.3(a).

“Schedule” shall refer to the Schedule of Stockholders attached hereto as Exhibit A.

“Seller” shall have the meaning as set forth in Section 2.3(a).

“Shares” shall mean all (i) shares of Common Stock held by Stockholders from time to time or (ii) securities of the Company issued in exchange for, upon reclassification of, or as a distribution in respect of, any of the foregoing.

“Stockholders” shall mean, collectively, the Berkshire Stockholders, the JH Stockholders, the Management Stockholders, the Other Stockholders and the Mezzanine Stockholders.

“Senior Subordinated Loan Agreement” shall mean the Senior Subordinated Loan Agreement dated on or around June 10, 2004 among MD Beauty, Inc., the Company, the Lenders (as defined therein), Gleacher Mezzanine LLC, as co-arranger, and York Street Capital Partners, L.L.C., as co-arranger, together with all exhibits and schedules thereto.

“Subsidiary” with respect to any entity (the “parent”) shall mean any corporation, firm, association or trust of which such parent, at the time in respect of which such term is used, (i) owns directly or indirectly more than fifty percent (50%) of the equity or beneficial interest, on a consolidated basis or (ii) owns directly or controls with power to vote, indirectly through one or more Subsidiaries, shares of the equity or beneficial interest having the power to elect more than fifty percent (50%) of the directors, trustees, managers or other officials having powers analogous to that of directors of a corporation.  Unless otherwise specifically indicated, when used herein the term Subsidiary shall refer to a direct or indirect Subsidiary of the Company.

“Supermajority Vote” shall mean the affirmative vote of (i) JH Stockholders holding a majority of all Shares held by JH Stockholders and (ii) Berkshire Stockholders holding a majority of all Shares held by Berkshire Stockholders.

“Take Along Group” shall have the meaning as set forth in Section 2.3(a).

“Third Party” shall mean any person other than the Company, any Berkshire Stockholder, any JH Stockholder, or any Affiliate of any Berkshire Stockholder or JH Stockholder..

 

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“Time Options” shall mean, collectively, the time vested options granted to certain Management Stockholders under the 2004 Equity Incentive Plan, to purchase shares of the Company’s Common Stock on the terms set forth therein.

“Transfer” shall mean to transfer, sell, assign, pledge, hypothecate, give, create a security interest in or lien on, place in trust (voting or otherwise), assign or in any other way encumber or dispose of, directly or indirectly and whether or not by operation of law or for value, any Shares or Options.

“Transfer Date” shall have the meaning as set forth in Section 2.1(a).

“Transferring Stockholder” shall have the meaning as set forth in Section 2.1(a).

“Trigger Event” shall mean the occurrence of any of the following:

i.                                        The failure (for any reason) of John Hansen (“Hansen”), in his personal capacity (subject to applicable community property laws) or through trusts for the benefit of his children, to own at any time, directly or indirectly, at least 4,460,635 shares of the 14,868,783 shares of Common Stock directly owned by JH MDB Investors, L.P.

ii.                                     The failure (for any reason) of (x) Hansen to own interests in JHMD Beauty GP, LLC giving Hansen the right to direct the management and affairs of JHMD Beauty GP, LLC or (y) JHMD Beauty GP, LLC to have the right to direct the affairs of JH MDB Investors, L.P. (including, without limitation, the ability to vote and dispose of any securities held by JH MDB Investors, L.P.).

iii.                                  The consummation of any Transfer of Shares by a JH Stockholder to any natural person or entity other than an entity the affairs of which Hansen has the right to direct, by means of a voting agreement or otherwise (including, without limitation, the ability to vote and dispose of such Shares on and after such Transfer); provided that if, prior to such transfer, such JH Stockholder provides evidence reasonably satisfactory to the Berkshire Stockholders that the transferee is an entity the affairs of which Hansen has the right to direct, such Transfer shall be deemed not to be a Trigger Event.

“Voluntary Termination” shall mean any voluntary termination of employment with the Company by a Management Stockholder.  The term Voluntary Termination shall not include termination of employment due to death, Disability or retirement.

“York Street” shall mean York Street Mezzanine Partners, L.P.

 

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ARTICLE II.
COVENANTS AND CONDITIONS

2.1.          Restrictions on Transfers .  No Stockholder may Transfer all or any part of the Shares owned by such Stockholder to anyone other than (i) a Permitted Transferee (subject to Section 2.1(c) below) or (ii) in accordance with the following procedures.  Any attempted Transfer of Shares not permitted by this Section 2.1 shall be null and void and the Company shall not in any way give effect to such impermissible Transfer.  Any attempted Transfer of Options not permitted by the applicable Incentive Plan shall be null and void and the Company shall not in any way give effect to such impermissible Transfer.

(a)           Involuntary Transfer

(i)           Any Stockholder who is the subject of an Involuntary Transfer (as defined below) (the “Transferring Stockholder”), shall notify the Company in writing within ten (10) days of such Involuntary Transfer (but the failure to give such notice shall not affect the rights of the parties hereunder).  For purposes of this Section 2.1(c), the later of receipt of such notice by the Company and the other Stockholders and the date of such Involuntary Transfer shall be the “Transfer Date”.

(ii)          For a period of twenty (20) days after the Transfer Date (the “Company Option Period”), the Company may, by notice in writing to the Transferring Stockholder, elect in writing to purchase any or all of the Shares subject to the Involuntary Transfer at the Fair Market Value of such Shares.

(iii)         If the Company does not elect to purchase any of the Shares subject to the Involuntary Transfer, or exercises such right only with respect to a portion of such Shares, then for a period of twenty (20) days commencing on the earlier of (a) the date, if any, that the Transferring Stockholder notifies the other Stockholders in writing that the Company has determined either not to exercise such right of purchase or to exercise such right only with respect to a portion of the Shares subject to the Involuntary Transfer, and (b) the expiration of the Company Option Period, the other Stockholders shall have the right to purchase all or any portion of such Shares subject to the Involuntary Transfer not so elected to be purchased by the Company, at the Fair Market Value of such Shares.  The specific number of such Shares subject to the Involuntary Transfer remaining after the Company has exercised its right pursuant to clause (ii) to which each other Stockholder shall be entitled to purchase shall be determined on a pro rata basis in proportion to the respective number of shares of Common Stock owned beneficially by each such Stockholder as of the Transfer Date in relation to the total number of shares of Common Stock owned beneficially by all such Stockholders (for each such Stockholder, its “Proportionate Share”).  Each such Stockholder shall also be entitled to indicate a desire to purchase all or a portion of any Shares subject to the Involuntary Transfer remaining after such pro rata allocation.  Each such Stockholder shall be allocated the maximum amount of Shares subject to the Involuntary Transfer set forth in such Stockholder’s offer to purchase, unless such allocation would result in the allocation of more securities in the aggregate than are available for purchase

 

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by the other Stockholders, in which case such Shares subject to the Involuntary Transfer shall be allocated among the Stockholders pro rata in accordance with each such Stockholder’s Proportionate Share; provided, however , that if the foregoing results in any Stockholder being allocated more than the maximum amount of Shares subject to the Involuntary Transfer specified in such Stockholder’s offer to purchase, such Stockholder will be allocated such maximum amount and the excess will be allocated as provided in this sentence (including this proviso).

(iv)         Any Shares subject to the Involuntary Transfer not accepted pursuant to clauses (ii) and (iii) above shall be Transferred in accordance with the terms and conditions of the Involuntary Transfer.

(v)          For purposes of this Agreement, the term “Involuntary Transfer” shall mean any involuntary sale, transfer, encumbrance or other disposition (other than as a result of the death of the Stockholder) by or in which any Stockholder shall be deprived or divested of any right, title or interest in or to any Shares, including without limitation (I) any levy of execution, transfer in connection with bankruptcy, reorganization, insolvency or similar proceedings, (II) any transfer to a public officer or agency pursuant to any abandoned property or escheat law, or (III) any transfer to the spouse of an individual or change in the record holder made pursuant to divorce proceedings.  A Transfer pursuant to Section 2.2 hereof shall not be deemed to be an Involuntary Transfer.

(b)           Any Transfer of Shares pursuant to this Section 2.1 shall remain subject to the Transfer restrictions of this Agreement and each intended transferee pursuant to this Section shall execute and deliver to the Company a counterpart of this Agreement, which shall evidence such transferee’s agreement that the Shares intended to be transferred shall continue to be subject to this Agreement and that as to such Shares the transferee shall be bound by the restrictions of this Agreement as a Stockholder hereunder.

(c)           Come Along .   Notwithstanding anything to the contrary contained herein, no Berkshire Stockholder or JH Stockholder may Transfer Shares to a person described in subsection (viii) of the definition of “Permitted Transferee” (a “Covered Transfer”) without complying with the terms and conditions set forth in this Section 2.1(c).

(i)           Any Berkshire Stockholder or JH Stockholder when desiring to effect a Covered Transfer (the “Transferor”) shall give not less than thirty (30) days prior written notice of such intended Transfer to each Mezzanine Stockholder, Other Stockholder and Management Stockholder and the Company.  Such notice (the “Participation Notice”) shall set forth the terms and conditions of such proposed Covered Transfer, including the name of the prospective transferee, the number of Shares proposed to be transferred (the “Participation Securities”) by the Transferor, the percentage of the total number of shares of Common Stock held by the Transferor that the Participation Securities constitutes (the “Come Along Percentage”), the

 

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purchase price per share of Common Stock proposed to be paid therefor, the payment terms and type of transfer to be effectuated and the proposed time and place of closing.  Within fifteen (15) days following the delivery of the Participation Notice by the Transferor to each Mezzanine Stockholder, Other Stockholder and Management Stockholder and the Company, each notified Stockholder desiring to participate in such proposed Covered Transfer (each, a “Participating Offeree”) shall, by notice in writing to the Transferor and to the Company, have the opportunity and right to sell to the purchasers in such proposed Covered Transfer (upon the same terms and conditions as the Transferor) up to that number of shares of Common Stock, as the case may be, subject to the last sentence of Section 2.1(c)(iii) below, as shall equal the product of (A) the Come Along Percentage and (B) the number of shares of Common Stock owned by such Participating Offeree.  The Transferor shall attempt to obtain inclusion in the proposed Covered Transfer of the entire number of Shares which the Transferor and the Participating Offerees desire to have included in the proposed Covered Transfer.  In the event the Transferor shall be unable to obtain the inclusion of such entire number of shares of Common Stock in the proposed Covered Transfer, the number of shares of Common Stock to be sold in the Covered Transfer by each Participating Offeree and the Transferor shall be determined in accordance with Section 2.1(c)(iii) below.  The terms and conditions of any sale pursuant to this Section 2.1(c) shall be the same as set forth in the Participation Notice, except as is provided in Section 2.1(c)(iii) below and except that the actual date of the closing of any proposed Covered Transfer may change.

(ii)          At the closing of any proposed Covered Transfer in respect of which a Participation Notice has been delivered, the Transferor, together with all Participating Offerees, shall deliver to the proposed transferee certificates evidencing the Shares to be sold thereto duly endorsed with stock powers and shall receive in exchange therefor the consideration to be paid or delivered by the proposed transferee in respect of such Shares as described in the Participation Notice.

(iii)         In the event that the Transferor under this Section 2.1(c) fails to complete the proposed Transfer within 90 days from the date of the Participation Notice, in order to complete a Transfer after such 90-day period, the Transferor must separately comply with this Section 2.1(c).

(iv)         The acceptance of each Participating Offeree shall be irrevocable except as hereinafter provided, and each such Participating Offeree shall be bound and obligated to sell, on the same terms and conditions specified in the Participation Notice as the Transferor (subject to all of the provisions of this Agreement), such number of Shares as specified in such Participating Offeree’s written commitment; provided, however , that in the case of vested Performance Options, Time Options and Rollover Options (for which the exercise price is less than the price per share of Common Stock being paid in the Transfer), the holders of such securities

 

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shall have the opportunity to exercise such Performance Options, Time Options and Rollover Options (if then exercisable) and participate in such sale as holders of Common Stock.  In the event the Transferor shall be unable to obtain the inclusion in the sale of all Shares which the Transferor and each Participating Offeree desires to have included in the sale, the number of Shares to be sold in the sale by the Transferor and each Participating Offeree shall be reduced on a pro rata basis according to the proportion which the number of Shares which each such party desires to have included in the sale bears to the total number of Shares desired by all such parties to have included in the sale.

(v)          In connection with any Covered Transfer, the Participating Offerees shall be obligated to become liable in respect of any representations, warranties, covenants, indemnities or otherwise to the transferee solely to the extent provided in the immediately following sentence.  Without limiting the generality of the foregoing, each Participating Offeree agrees to execute and deliver such agreements as may be reasonably specified by the Transferor to which such Transferor will also be party, including, without limitation, agreements to (A) (1) make individual representations, warranties, covenants and other agreements as to the unencumbered title to its Shares and its power, authority and legal right to Transfer such Shares and the absence of any Adverse Claim with respect to such Shares and (2) be liable without limitation as to such representations, warranties, covenants and other agreements and (B) be liable (whether by purchase price adjustment, indemnity payments or otherwise) in respect of representations, warranties, covenants and agreements in respect of the Company and its subsidiaries; provided, however, that the aggregate amount of liability described in this clause (v) in connection with any Covered Transfer shall not exceed the lesser of (Y) such Participating Offeree ‘s pro rata portion of any such liability, to be determined in accordance with such Participating Offeree’s portion of the total number of Shares included in such Covered Transfer or (Z) the proceeds to such Participating Offeree in connection with such Covered Transfer.

2.2.          Call by the Company and the Stockholders .

(a)           Upon the termination of the employment of any Management Stockholder by the Company or any of its Subsidiaries (a “Call Event”) for any reason, the Company or its designee shall have the right to purchase (the “Call Option”), by delivery of a written notice (the “Call Notice”) to such terminated Management Stockholder no later than ninety (90) days after the date of such Call Event, and such Management Stockholder and such Management Stockholder’s Permitted Transferees (collectively, the “Call Group”) shall be required to sell all (but not less than all) of the Call Securities at a price per share equal to the Call Price (as defined below) of such Call Securities as of the date the Call Notice is delivered; provided that for purposes of determining whether all such Call Securities have been purchased, securities purchased by other Stockholders pursuant to Section 2.2(d) below shall be deemed to have been purchased by the Company.

 

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(b)           For purposes of this Section 2.2, the term “Call Price” shall mean

(i)           with respect to Shares other than Rollover Shares, in the event of a termination of a Management Stockholder’s employment (A) by the Company without Cause, (B) by virtue of death or Disability, (C) upon retirement in accordance with Company policy, or (D) by Voluntary Termination, the Fair Market Value of such Shares;

(ii)          with respect to Shares other than Rollover Shares, in the event of a termination of a Management Stockholder’s employment by the Company for Cause, the lower of (x) the Investment Price or (y) the Fair Market Value of all Shares then held by such Management Stockholder;

(iii)         with respect to any Rollover Options, in the event of a termination for Cause, the lower of (A) the difference between (i) $2.6902 and (ii) the exercise price of such Rollover Options and (B) the difference between (i) the Fair Market Value per share and (ii) the exercise price of such Rollover Options; provided that the Call Option shall not apply to Rollover Options if the Management Stockholder’s employment is terminated other than for Cause;

(iv)         with respect to any Rollover Shares, in the event of a termination for Cause, the lower of (A) $2.6902 and (B) the Fair Market Value per share; provided that the Call Option shall not apply to Rollover Shares if the Management Stockholder’s employment is terminated other than for Cause;

(v)          with respect to any vested Time Options and vested and earned Performance Options, (A) upon a termination for Cause, zero, as such Options shall automatically expire as set forth in the Option Certificates pursuant to which they were granted and (B) upon any other termination, the difference between (x) the Call Price for the Shares underlying such Time Options or Performance Options, as the case may be (calculated as if the Shares underlying such Time Options or Performance Options, as the case may be were outstanding and had been called pursuant to this Section 2.2 and therefore calculated in accordance with the procedures set forth in clauses 2.2(b)(i) and 2.2(b)(iii) above) minus (y) the exercise price of such vested Time Options or vested and earned Performance Options, as the case may be; provided, that such difference shall not be less than zero; and

(vi)         with respect to any unvested Time Options or unvested Performance Options, zero, as such options shall automatically expire as set forth in the Option Certificates pursuant to which they were granted.

(c)           The closing of any purchase of Call Securities by the Company pursuant to Section 2.2(a) shall take place at the principal office of the Company no later than the 180th day after the Call Event.  At such closing, the Company shall deliver to the Call

 

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Group consideration (as set forth below) in an amount equal to the aggregate Call Price payable in respect of such Call Securities against delivery of (i) original stock certificates and stock powers duly endorsed in favor of the Company representing the Call Securities, and (ii) an executed agreement, in form reasonably satisfactory to the Company, evidencing the cancellation of any Rollover Options, vested Time Options and vested and earned Performance Options purchased at such closing. The Company shall pay the Call Price by (i) paying the Call Group in cash, (ii) if required to maintain compliance under any loan or credit agreement or promissory note to which the Company or any subsidiary is a party, issuing a subordinated promissory note in a principal amount equal to the purchase price which note shall be subordinated on terms satisfactory to the respective lenders and/or purchasers under each such agreement or note who are contractually entitled to such subordination or (iii) a combination of (i) and (ii).  The principal of such note (the “Company Note”) will be due and payable in five equal annual installments, the first such installment becoming due and payable on the first anniversary of the issuance of such note, and interest will accrue thereon at a rate equal to the applicable federal rate on the date of issuance of the Company Note plus 3% and be payable annually in arrears.  Such Company Note may be prepaid by the Company in whole at any time or in part from time to time without premium or penalty and shall otherwise be in the form approved by the Board.  The Company shall not be obligated to make any payment pursuant to this Section 2.2(c) or any payment of principal or interest due under a Company Note if such payment would cause the Company or any Subsidiary to be in violation of applicable law or in default under or otherwise in violation of the terms of, or limited by the ceiling in the availability or credit advances under, any loan, credit or investment agreement or promissory note to which the Company or any Subsidiary is a party (a “Default”).  In the event the Company cannot make the payments of principal and interest due under a Company Note because it is in Default, the Company will undertake to make such payments at such time as the Company is no longer in Default and would not be so in Default (i) by virtue of the delivery of any payments, (ii) by delivery of such Company Note or (iii) by any payment of principal and interest due under such Company Note, as contemplated herein.

(d)           Notwithstanding anything set forth in this Section 2.2 to the contrary, if the Company does not elect to exercise the Call Option or exercises the Call Option with respect to only a portion of the Call Securities, the Board shall delegate the right to exercise the Call Option to the Stockholders, and shall notify the Stockholders of such delegation within 45 days of the Call Event, and the Stockholders shall have the right, but not the obligation to exercise the Call Option and to acquire such Call Securities at the Call Price and on the same terms and conditions as set forth in Section 2.2(c) which apply to the purchase of Call Securities by the Company, except all payments pursuant to this Section 2.2(d) shall be made in immediately available funds.  The specific number of Call Securities remaining after the Company has exercised the Call Option which each Stockholder shall be entitled to acquire shall equal such Stockholder’s Proportionate Share of such Call Securities.  Each such Stockholder shall also be entitled to indicate within 30 days of receiving notice a desire to purchase all or a portion of any available Call Securities above such amount.  Each such Stockholder shall be allocated the maximum amount of Call Securities set forth in such Stockholder’s offer to purchase, unless such allocation would result in the allocation of more Call Securities in the

 

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aggregate than are available for purchase by the Stockholders, in which case such Call Securities shall be allocated among the Stockholders pro rata in accordance with each such Stockholders’ Proportionate Shares; provided, however , that if the foregoing results in any Stockholder being allocated more than the maximum amount of Call Securities specified in such Stockholder’s offer to purchase, such Stockholder will be allocated such maximum amount and the excess will be allocated as provided in this sentence (including this proviso).

2.3.          Take Along .

(a)           If (i) at any time JH Stockholders holding a majority of the Shares held by all JH Stockholders and Berkshire Stockholders holding a majority of the Shares held by all Berkshire Stockholders or (ii) at any time after the occurrence of a Trigger Event, Stockholders holding a majority of all Shares (which majority includes Berkshire Stockholders holding a majority of the Shares held by all Berkshire Stockholders) (such Stockholders being referred to herein as the “Take Along Group”) elect to consummate, or cause the Company to consummate, a Company Sale, then upon ten (10) business days written notice by the Take Along Group to each other Stockholder, which notice shall set forth the terms and conditions of such proposed Company Sale or exchange, including the name of the prospective transferee, the number of Shares proposed to be sold or exchanged by the Take Along Group, if any, in the Company Sale, the percentage of Shares held by the Take Along Group which are being sold in such Company Sale (the “Take Along Percentage”), the consideration to be received by the Take Along Group and the proposed time and place of closing (such notice being referred to as the “Sale Request”), each other Stockholder (each, a “Seller”), in the event the Company Sale is consummated, shall be obligated to consummate, consent to and raise no objection to the proposed Company Sale and take all other actions reasonably necessary or desirable to consummate the proposed Company Sale on the terms proposed by the Take Along Group as set forth in the Sale Request.  Without limiting the generality of the foregoing, (i) if the Company Sale is structured as a merger, consolidation or sale of assets, each Seller will vote or cause to be voted all Shares that he holds or with respect to which he has the power to direct the voting and which he is entitled to vote on such proposed Company Sale in favor of such proposed Company Sale and will waive all appraisal and dissenters rights and hereby grants a proxy in favor of the Take Along Group to vote the Seller’s Shares in accordance with this Section 2.3(a) and (ii) if the Company Sale is structured as a sale or redemption of Shares, each Seller will agree to sell the Take Along Percentage of its Shares on the same terms and conditions as the Take Along Group.  Each proxy granted in the foregoing sentence is irrevocable, coupled with an interest and shall survive until the expiration of the provisions of this Section 2.3(a).  If required, each Seller shall deliver certificates for all of its Shares being Transferred pursuant to this Section 2.3(a) at the closing of the proposed Transfer, free and clear of all claims, liens and encumbrances.  The terms and conditions of any sale pursuant to this Section 2.3(a) shall be no less favorable than those set forth in the Sale Request and shall result in each holder receiving the same form and amount of consideration per share; provided, however, that in the case of Options, the holders of such securities shall have the opportunity to either (i) exercise such Options (if then exercisable) and participate in such sale as holders of Common Stock issuable upon such exercise, or (ii) upon the

 

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held by such Requesting Party to whichever of the Berkshire Stockholders or the JH Stockholders is not the Requesting Party (the “Non-Requesting Party”) by delivery of a notice, stating such Stockholders’ desire to sell such Shares, the number of Shares proposed to be t